Exhibit 99.3
Cameco Corporation
2014 condensed consolidated interim financial statements
(unaudited)
July 30, 2014
Cameco Corporation
Consolidated statements of earnings
| (Revised - note 4) | (Revised - note 4) | |||||||||||||||||||
| (Unaudited) | Three months ended | Six months ended | ||||||||||||||||||
($Cdn thousands, except per share amounts) | Note | Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||||
Revenue from products and services | $ | 501,971 | $ | 420,819 | $ | 921,200 | $ | 864,724 | ||||||||||||
Cost of products and services sold | 295,029 | 256,677 | 540,326 | 553,169 | ||||||||||||||||
Depreciation and amortization | 71,111 | 65,126 | 137,445 | 117,491 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Cost of sales | 366,140 | 321,803 | 677,771 | 670,660 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Gross profit | 135,831 | 99,016 | 243,429 | 194,064 | ||||||||||||||||
Administration | 36,436 | 42,920 | 81,649 | 98,811 | ||||||||||||||||
Exploration | 9,318 | 16,392 | 23,738 | 36,575 | ||||||||||||||||
Research and development | 421 | 2,180 | 1,693 | 3,953 | ||||||||||||||||
Loss on sale of assets | 6,665 | 129 | 5,556 | 129 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Earnings from operations | 82,991 | 37,395 | 130,793 | 54,596 | ||||||||||||||||
Finance costs | 12 | (49,579 | ) | (10,309 | ) | (53,595 | ) | (24,453 | ) | |||||||||||
Gains (losses) on derivatives | 18 | 60,367 | (39,210 | ) | 1,479 | (63,294 | ) | |||||||||||||
Finance income | 2,094 | 1,895 | 3,239 | 4,362 | ||||||||||||||||
Share of loss from equity-accounted investees | (3,469 | ) | (749 | ) | (13,503 | ) | (2,081 | ) | ||||||||||||
Other income (expense) | 13 | 28,750 | (712 | ) | 10,929 | (1,738 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Earnings (loss) before income taxes | 121,154 | (11,690 | ) | 79,342 | (32,608 | ) | ||||||||||||||
Income tax recovery | 14 | (5,691 | ) | (45,080 | ) | (51,067 | ) | (73,489 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net earnings from continuing operations | 126,845 | 33,390 | 130,409 | 40,881 | ||||||||||||||||
Net earnings from discontinued operation | 4 | — | 779 | 127,243 | 1,652 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net earnings | $ | 126,845 | $ | 34,169 | $ | 257,652 | $ | 42,533 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net earnings (loss) attributable to: | ||||||||||||||||||||
Equity holders | $ | 127,208 | $ | 34,354 | $ | 258,544 | $ | 42,892 | ||||||||||||
Non-controlling interest | (363 | ) | (185 | ) | (892 | ) | (359 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net earnings | $ | 126,845 | $ | 34,169 | $ | 257,652 | $ | 42,533 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Earnings per common share attributable to equity holders | ||||||||||||||||||||
Continuing operations | 0.32 | 0.08 | 0.33 | 0.10 | ||||||||||||||||
Discontinued operation | — | 0.01 | 0.32 | 0.01 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total basic earnings per share | 15 | $ | 0.32 | $ | 0.09 | $ | 0.65 | $ | 0.11 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Continuing operations | 0.32 | 0.08 | 0.33 | 0.10 | ||||||||||||||||
Discontinued operation | — | 0.01 | 0.32 | 0.01 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total diluted earnings per share | 15 | $ | 0.32 | $ | 0.09 | $ | 0.65 | $ | 0.11 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
1
Cameco Corporation
Consolidated statements of comprehensive income
| (Revised - note 4) | (Revised - note 4) | |||||||||||||||||||
| (Unaudited) | Three months ended | Six months ended | ||||||||||||||||||
($Cdn thousands) | Note | Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||||
Net earnings | $ | 126,845 | $ | 34,169 | $ | 257,652 | $ | 42,533 | ||||||||||||
Other comprehensive income (loss), net of taxes: | 14 | |||||||||||||||||||
Items that will not be reclassified to net earnings: | ||||||||||||||||||||
Remeasurements of defined benefit liability—discontinued operation | — | 100,725 | — | 100,725 | ||||||||||||||||
Items that are or may be reclassified to net earnings: | ||||||||||||||||||||
Exchange differences on translation of foreign operations | (48,832 | ) | (37,780 | ) | 31,704 | (3,463 | ) | |||||||||||||
Gains (losses) on derivatives designated as cash flow hedges—discontinued operation | — | 190 | — | (237 | ) | |||||||||||||||
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation | — | (995 | ) | (300 | ) | (2,275 | ) | |||||||||||||
Unrealized losses on available-for-sale assets | (362 | ) | — | (442 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other comprehensive income (loss), net of taxes | (49,194 | ) | 62,140 | 30,962 | 94,750 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | $ | 77,651 | $ | 96,309 | $ | 288,614 | $ | 137,283 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Comprehensive income (loss) from continuing operations | $ | 77,651 | $ | (4,390 | ) | $ | 161,671 | $ | 37,418 | |||||||||||
Comprehensive income from discontinued operation | 4 | — | 100,699 | 126,943 | 99,865 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | $ | 77,651 | $ | 96,309 | $ | 288,614 | $ | 137,283 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other comprehensive income (loss) attributable to: | ||||||||||||||||||||
Equity holders | $ | (49,177 | ) | $ | 62,089 | $ | 30,936 | $ | 94,691 | |||||||||||
Non-controlling interest | (17 | ) | 51 | 26 | 59 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other comprehensive income (loss) for the period | $ | (49,194 | ) | $ | 62,140 | $ | 30,962 | $ | 94,750 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||||||
Equity holders | $ | 78,031 | $ | 96,443 | $ | 289,480 | $ | 137,583 | ||||||||||||
Non-controlling interest | (380 | ) | (134 | ) | (866 | ) | (300 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income for the period | $ | 77,651 | $ | 96,309 | $ | 288,614 | $ | 137,283 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
2
Cameco Corporation
Consolidated statements of financial position
| (Unaudited) | As at | |||||||||||
($Cdn thousands) | Note | Jun 30/14 | Dec 31/13 | |||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 690,248 | $ | 229,135 | ||||||||
Short-term investments | 138,258 | — | ||||||||||
Accounts receivable | 267,015 | 431,375 | ||||||||||
Current tax assets | 9,254 | 2,598 | ||||||||||
Inventories | 6 | 998,750 | 913,315 | |||||||||
Supplies and prepaid expenses | 129,292 | 177,632 | ||||||||||
Current portion of long-term receivables, investments and other | 7 | 28,334 | 3,775 | |||||||||
|
|
|
| |||||||||
Total current assets | 2,261,151 | 1,757,830 | ||||||||||
|
|
|
| |||||||||
Property, plant and equipment | 5,236,851 | 5,040,993 | ||||||||||
Goodwill and intangible assets | 192,630 | 194,031 | ||||||||||
Long-term receivables, investments and other | 7 | 453,639 | 287,548 | |||||||||
Investments in equity-accounted investees | 4, 21 | 183,063 | 492,712 | |||||||||
Deferred tax assets | 321,752 | 266,203 | ||||||||||
|
|
|
| |||||||||
Total non-current assets | 6,387,935 | 6,281,487 | ||||||||||
|
|
|
| |||||||||
Total assets | $ | 8,649,086 | $ | 8,039,317 | ||||||||
|
|
|
| |||||||||
Liabilities and shareholders’ equity | ||||||||||||
Current liabilities | ||||||||||||
Bank overdraft | $ | 84,697 | $ | 41,226 | ||||||||
Accounts payable and accrued liabilities | 287,482 | 437,941 | ||||||||||
Current tax liabilities | 26,106 | 54,708 | ||||||||||
Short-term debt | 9,991 | 50,230 | ||||||||||
Dividends payable | 39,578 | 39,548 | ||||||||||
Current portion of long-term debt | 8 | 299,820 | — | |||||||||
Current portion of other liabilities | 9 | 40,359 | 60,685 | |||||||||
Current portion of provisions | 10 | 25,763 | 20,213 | |||||||||
|
|
|
| |||||||||
Total current liabilities | 813,796 | 704,551 | ||||||||||
|
|
|
| |||||||||
Long-term debt | 8 | 1,490,570 | 1,293,383 | |||||||||
Other liabilities | 9 | 63,269 | 79,380 | |||||||||
Provisions | 10 | 667,163 | 570,700 | |||||||||
Deferred tax liabilities | 42,751 | 41,909 | ||||||||||
|
|
|
| |||||||||
Total non-current liabilities | 2,263,753 | 1,985,372 | ||||||||||
|
|
|
| |||||||||
Shareholders’ equity | ||||||||||||
Share capital | 1,862,244 | 1,854,671 | ||||||||||
Contributed surplus | 191,412 | 186,382 | ||||||||||
Retained earnings | 3,493,519 | 3,314,049 | ||||||||||
Other components of equity | 24,099 | (6,837 | ) | |||||||||
|
|
|
| |||||||||
Total shareholders’ equity attributable to equity holders | 5,571,274 | 5,348,265 | ||||||||||
Non-controlling interest | 263 | 1,129 | ||||||||||
|
|
|
| |||||||||
Total shareholders’ equity | 5,571,537 | 5,349,394 | ||||||||||
|
|
|
| |||||||||
Total liabilities and shareholders’ equity | $ | 8,649,086 | $ | 8,039,317 | ||||||||
|
|
|
| |||||||||
Commitments and contingencies [notes 5,10,14]
See accompanying notes to condensed consolidated interim financial statements.
3
Cameco Corporation
Consolidated statements of changes in equity
| Attributable to equity holders | ||||||||||||||||||||||||||||||||||||
($ Cdn thousands) | Share capital | Contributed surplus | Retained earnings | Foreign currency translation | Cash flow hedges | Available-for- sale assets | Total | Non- controlling interest | Total equity | |||||||||||||||||||||||||||
Balance at January 1, 2014 | $ | 1,854,671 | $ | 186,382 | $ | 3,314,049 | $ | (7,165 | ) | $ | 300 | $ | 28 | $ | 5,348,265 | $ | 1,129 | $ | 5,349,394 | |||||||||||||||||
Net earnings (loss) | — | — | 258,544 | — | — | — | 258,544 | (892 | ) | 257,652 | ||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 31,678 | (300 | ) | (442 | ) | 30,936 | 26 | 30,962 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total comprehensive income for the period | — | — | 258,544 | 31,678 | (300 | ) | (442 | ) | 289,480 | (866 | ) | 288,614 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Share-based compensation | — | 8,838 | — | — | — | — | 8,838 | — | 8,838 | |||||||||||||||||||||||||||
Share options exercised | 7,573 | (3,808 | ) | — | — | — | — | 3,765 | — | 3,765 | ||||||||||||||||||||||||||
Dividends | — | — | (79,074 | ) | — | — | — | (79,074 | ) | — | (79,074 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at June 30, 2014 | $ | 1,862,244 | $ | 191,412 | $ | 3,493,519 | $ | 24,513 | $ | — | $ | (414 | ) | $ | 5,571,274 | $ | 263 | $ | 5,571,537 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at January 1, 2013 | $ | 1,851,507 | $ | 168,952 | $ | 2,913,134 | $ | 3,700 | $ | 4,091 | $ | — | $ | 4,941,384 | $ | 580 | $ | 4,941,964 | ||||||||||||||||||
Net earnings (loss) | — | — | 42,892 | — | — | — | 42,892 | (359 | ) | 42,533 | ||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | 100,725 | (3,522 | ) | (2,512 | ) | — | 94,691 | 59 | 94,750 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total comprehensive income for the period | — | — | 143,617 | (3,522 | ) | (2,512 | ) | — | 137,583 | (300 | ) | 137,283 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Share-based compensation | — | 11,978 | — | — | — | — | 11,978 | — | 11,978 | |||||||||||||||||||||||||||
Share options exercised | 2,168 | (1,360 | ) | — | — | — | — | 808 | — | 808 | ||||||||||||||||||||||||||
Dividends | — | — | (79,083 | ) | — | — | — | (79,083 | ) | — | (79,083 | ) | ||||||||||||||||||||||||
Change in ownership interest in subsidiary | — | — | (1,188 | ) | — | — | — | (1,188 | ) | 1,188 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at June 30, 2013 | $ | 1,853,675 | $ | 179,570 | $ | 2,976,480 | $ | 178 | $ | 1,579 | $ | — | $ | 5,011,482 | $ | 1,468 | $ | 5,012,950 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
4
Cameco Corporation
Consolidated statements of cash flows
| (Revised - note 4) | (Revised - note 4) | |||||||||||||||||||
| (Unaudited) | Three months ended | Six months ended | ||||||||||||||||||
($Cdn thousands) | Note | Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||||
Operating activities | ||||||||||||||||||||
Net earnings | $ | 126,845 | $ | 34,169 | $ | 257,652 | $ | 42,533 | ||||||||||||
Adjustments for: | ||||||||||||||||||||
Depreciation and amortization | 71,111 | 65,126 | 137,445 | 117,491 | ||||||||||||||||
Deferred charges | (7,785 | ) | 3,438 | (10,844 | ) | 2,080 | ||||||||||||||
Unrealized losses (gains) on derivatives | (80,143 | ) | 34,985 | (49,344 | ) | 63,182 | ||||||||||||||
Share-based compensation | 17 | 3,960 | 4,183 | 8,838 | 11,978 | |||||||||||||||
Loss on sale of assets | 6,665 | 129 | 5,556 | 129 | ||||||||||||||||
Finance costs | 12 | 49,579 | 10,309 | 53,595 | 24,453 | |||||||||||||||
Finance income | (2,094 | ) | (1,895 | ) | (3,239 | ) | (4,362 | ) | ||||||||||||
Share of loss from equity-accounted investees | 3,469 | 749 | 13,503 | 2,081 | ||||||||||||||||
Other expense (income) | — | 712 | (480 | ) | 1,738 | |||||||||||||||
Discontinued operation | 4 | — | — | (127,243 | ) | — | ||||||||||||||
Income tax recovery | 14 | (5,691 | ) | (45,080 | ) | (51,067 | ) | (73,489 | ) | |||||||||||
Interest received | 1,451 | (458 | ) | 2,197 | 3,552 | |||||||||||||||
Income taxes paid | (98,643 | ) | — | (207,861 | ) | (63,403 | ) | |||||||||||||
Income taxes refunded | — | 15,538 | — | 9,101 | ||||||||||||||||
Other operating items | 16 | (94,196 | ) | (155,032 | ) | (47,192 | ) | 70,341 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net cash provided by (used in) continuing operations | (25,472 | ) | (33,127 | ) | (18,484 | ) | 207,405 | |||||||||||||
Net cash provided by (used in) discontinued operation | 4 | — | (3,465 | ) | — | 25,050 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net cash provided by (used in) operations | (25,472 | ) | (36,592 | ) | (18,484 | ) | 232,455 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Investing activities | ||||||||||||||||||||
Additions to property, plant and equipment | (111,221 | ) | (157,280 | ) | (223,130 | ) | (339,177 | ) | ||||||||||||
Acquisitions, net of cash | 5 | — | — | — | (126,197 | ) | ||||||||||||||
Repayment of debt acquired on acquisition of business | 5 | — | — | — | (118,068 | ) | ||||||||||||||
Decrease (increase) in short-term investments | (28,849 | ) | — | (138,265 | ) | 49,535 | ||||||||||||||
Decrease (increase) in long-term receivables, investments and other |
| (2,093 | ) | 2,445 | (566 | ) | 3,683 | |||||||||||||
Proceeds from sale of property, plant and equipment | 698 | — | 676 | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net cash used in investing (continuing operations) | (141,465 | ) | (154,835 | ) | (361,285 | ) | (530,224 | ) | ||||||||||||
Net cash provided by investing (discontinued operation) | 4 | — | — | 447,096 | — | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net cash provided by (used in) investing | (141,465 | ) | (154,835 | ) | 85,811 | (530,224 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Financing activities | ||||||||||||||||||||
Increase in debt | 496,357 | — | 496,357 | — | ||||||||||||||||
Decrease in short-term debt | (30,305 | ) | (7,775 | ) | (41,049 | ) | (15,293 | ) | ||||||||||||
Interest paid | (10,045 | ) | (9,613 | ) | (31,314 | ) | (33,876 | ) | ||||||||||||
Proceeds from issuance of shares, stock option plan | 522 | 828 | 5,914 | 1,696 | ||||||||||||||||
Dividends paid | (39,540 | ) | (39,540 | ) | (79,044 | ) | (79,075 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net cash provided by (used in) financing | 416,989 | (56,100 | ) | 350,864 | (126,548 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Increase (decrease) in cash and cash equivalents net of bank overdraft |
| 250,052 | (247,527 | ) | 418,191 | (424,317 | ) | |||||||||||||
Exchange rate changes on foreign currency cash balances | (1,823 | ) | 1,952 | (549 | ) | 6,448 | ||||||||||||||
Cash and cash equivalents net of bank overdraft, beginning of period |
| 357,322 | 577,205 | 187,909 | 749,499 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalents net of bank overdraft at end of period | $ | 605,551 | $ | 331,630 | $ | 605,551 | $ | 331,630 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalents is comprised of: | ||||||||||||||||||||
Cash | $ | 61,464 | $ | 100,740 | ||||||||||||||||
Cash equivalents | 628,784 | 230,890 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Cash and cash equivalents | 690,248 | 331,630 | ||||||||||||||||||
Bank overdraft | (84,697 | ) | — | |||||||||||||||||
|
|
|
| |||||||||||||||||
Cash and cash equivalents and bank overdraft | $ | 605,551 | $ | 331,630 | ||||||||||||||||
|
|
|
| |||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
5
Cameco Corporation
Notes to condensed consolidated interim financial statements
(Unaudited)
(Cdn$ thousands, except per share amounts and as noted)
1. Cameco Corporation
Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The condensed consolidated interim financial statements as at and for the period ended June 30, 2014 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Company’s interests in associates and joint arrangements. The Company is primarily engaged in the exploration for and the development, mining, refining, conversion, fabrication and trading of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries.
2. Significant accounting policies
A. Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34Interim Financial Reporting.The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with Cameco’s annual consolidated financial statements as at and for the year ended December 31, 2013.
These condensed consolidated interim financial statements were authorized for issuance by the Company’s board of directors on July 30, 2014.
B. Basis of presentation
These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars and amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted.
The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date:
| Derivative financial instruments at fair value through profit and loss | Fair value | |
| Non-derivative financial instruments at fair value through profit and loss | Fair value | |
| Available-for-sale financial assets | Fair value | |
| Liabilities for cash-settled share-based payment arrangements | Fair value | |
| Net defined benefit liability | Fair value of plan assets less the present value of the defined benefit obligation |
The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2013.
6
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5 of the December 31, 2013 consolidated financial statements.
3. Accounting standards
A. Changes in accounting policy
On January 1, 2014, Cameco adopted the following new standards and amendments as issued by the International Accounting Standards Board (IASB): IAS 32,Financial Instruments: Presentation(IAS 32), International Financial Reporting Interpretations Committee 21,Levies(IFRIC 21) and IAS 36, Impairment of Assets(IAS 36).
i. Financial assets and financial liabilities
IAS 32 clarifies matters regarding offsetting financial assets and financial liabilities as well as related disclosure requirements. As Cameco does not have a practice of offsetting its financial instruments, the adoption of IAS 32 has had no effect on the financial reporting of Cameco.
ii. Levies
IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs. Cameco’s current accounting treatment for levies is consistent with the requirements of IFRIC 21, such that the adoption of IFRIC 21 has had no material impact on the financial reporting of Cameco.
iii. Disclosure of recoverable amounts
The amendments in IAS 36 reverse the unintended requirement in IFRS 13 to disclose the recoverable amount of every cash generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under these amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed. As a result, the adoption of IAS 36 has had no effect on the financial reporting of Cameco.
B. New standards and interpretations not yet adopted
i. Financial instruments
On July 24, 2014, the IASB issued IFRS 9,Financial Instruments (IFRS 9). IFRS 9 replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset or liability. It also introduces additional changes relating to financial liabilities and aligns hedge accounting more closely with risk management.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption of the new standard permitted. Cameco does not intend to early adopt IFRS 9. The extent of the impact of adoption of IFRS 9 has not yet been determined.
ii. Revenue
In May 2014, the IASB issued IFRS 15,Revenue from Contracts with Customers(IFRS 15). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. Cameco intends to adopt IFRS 15 in its financial statements for the annual period beginning January 1, 2017. The extent of the impact of adoption of IFRS 15 has not yet been determined.
7
iii. Property, plant and equipment and intangible assets
In May 2014, the IASB issued amendments to IAS16,Property, Plant and Equipment (IAS 16) and IAS 38,Intangible Assets (IAS 38). The amendments are effective for annual periods beginning on or after January 1, 2016 and are to be applied prospectively. The amendments clarify the factors to be considered in assessing the technical or commercial obsolescence and the resulting depreciation period of an asset and state that a depreciation method based on revenue is not appropriate. Cameco intends to adopt the amendments to IAS 16 and IAS 38 in its financial statements for the annual period beginning January 1, 2016.
iv. Joint arrangements
In May 2014, the IASB issued amendments to IFRS 11,Joint Arrangements (IFRS 11). The amendments in IFRS 11 are effective for annual periods beginning on or after January 1, 2016 and are to be applied prospectively. The amendments clarify the accounting for the acquisition of interests in joint operations and require the acquirer to apply the principles of business combinations accounting in IFRS 3,Business Combinations. Cameco intends to adopt the amendments to IFRS 11 in its financial statements for the annual period beginning January 1, 2016.
4. Discontinued operation
On March 27, 2014, Cameco completed the sale of its 31.6% limited partnership interest in Bruce Power L.P. (BPLP) which operates the four Bruce B nuclear reactors in Ontario. The aggregate sale price for Cameco’s interest in BPLP and certain related entities was $450,000,000. The sale has been accounted for effective January 1, 2014. Cameco received net proceeds of approximately $447,096,000 and realized an after tax gain of $127,243,000 on this divestiture.
As a result of the transaction, Cameco presented the results of BPLP as a discontinued operation and revised its statement of earnings, statement of comprehensive income and statement of cash flows to reflect this change in presentation. Net earnings from this discontinued operation are as follows:
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Share of earnings from BPLP and related entities | $ | — | $ | 1,011 | $ | — | $ | 2,175 | ||||||||
Tax expense | — | 232 | — | 523 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| — | 779 | — | 1,652 | |||||||||||||
Gain on disposal of BPLP and related entities | — | — | 144,912 | — | ||||||||||||
Tax expense on disposal | — | — | 17,669 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| — | — | 127,243 | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net earnings from discontinued operation | $ | — | $ | 779 | $ | 127,243 | $ | 1,652 | ||||||||
|
|
|
|
|
|
|
| |||||||||
5. Acquisition of NUKEM Energy GmbH (NUKEM)
On January 9, 2013, Cameco completed the acquisition of NUKEM from Advent International and other shareholders, through the purchase of all the outstanding shares for cash consideration of $148,302,000 (US).
While Cameco received the economic benefit of owning NUKEM as of January 1, 2012, the results of NUKEM were consolidated with the results of Cameco commencing on January 9, 2013. NUKEM is one of the world’s leading traders and brokers of nuclear fuel products and services. The acquisition complements Cameco’s business by strengthening our position in nuclear fuel markets and improving our access to unconventional and secondary sources of supply.
In accordance with the acquisition method of accounting, the purchase price was allocated to the underlying assets and liabilities assumed based on their fair values at the date of acquisition. Fair values were determined based on discounted cash flows and quoted market prices. The values assigned to the net assets acquired were as follows:
8
Net assets acquired(USD) | ||||
Cash and cash equivalents | $ | 12,974 | ||
Accounts receivable | 43,529 | |||
Other working capital | 5,172 | |||
Inventories | 165,280 | |||
Intangible assets | 87,535 | |||
Accounts payable and accrued liabilities | (68,464 | ) | ||
Long-term debt | (116,922 | ) | ||
Provisions | (15,514 | ) | ||
Deferred tax liabilities | (53,665 | ) | ||
Goodwill | 88,377 | |||
|
| |||
Total | $ | 148,302 | ||
|
| |||
An advisory fee of $2,980,000 has been included in administration expense in the consolidated statement of earnings for the period ended June 30, 2013.
As at June 30, 2014, NUKEM had the following commitments (in USD) to purchase uranium and fuel services products:
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||
$37,514 | 157,707 | 227,699 | 31,404 | 40,518 | 139,288 | $634,130 |
6. Inventories
| Jun 30/14 | Dec 31/13 | |||||||
Uranium | ||||||||
Concentrate | $ | 511,206 | $ | 550,305 | ||||
Broken ore | 41,399 | 4,572 | ||||||
|
|
|
| |||||
| 552,605 | 554,877 | |||||||
NUKEM | 256,698 | 208,217 | ||||||
Fuel services | 189,447 | 150,221 | ||||||
|
|
|
| |||||
Total | $ | 998,750 | $ | 913,315 | ||||
|
|
|
| |||||
For the quarter ended June 30, 2014, Cameco expensed $327,100,000 of inventory as cost of sales (2013—$286,100,000). For the six months ended June 30, 2014, Cameco expensed $602,200,000 of inventory as cost of sales (2013—$607,400,000). Included in cost of sales for the period ended June 30, 2014 is a $6,000,000 write-down of NUKEM inventory which Cameco recorded to reflect net realizable value.
9
7. Long-term receivables, investments and other
| Jun 30/14 | Dec 31/13 | |||||||
Investments in equity securities | $ | 22,382 | $ | 22,805 | ||||
Derivatives [note 18] | 32,869 | 7,391 | ||||||
Advances receivable from JV Inkai LLP [note 20] | 90,905 | 95,319 | ||||||
Investment tax credits | 86,855 | 82,177 | ||||||
Amounts receivable related to tax dispute [note 14] | 215,110 | 59,475 | ||||||
Other | 33,852 | 24,156 | ||||||
|
|
|
| |||||
| 481,973 | 291,323 | |||||||
Less current portion | (28,334 | ) | (3,775 | ) | ||||
|
|
|
| |||||
Net | $ | 453,639 | $ | 287,548 | ||||
|
|
|
| |||||
8. Long-term debt
| Jun 30/14 | Dec 31/13 | |||||||
Unsecured debentures | ||||||||
Series C - 4.70% debentures due July 16, 2014 | $ | 299,820 | $ | 299,537 | ||||
Series D - 5.67% debentures due September 2, 2019 | 497,228 | 497,003 | ||||||
Series E - 3.75% debentures due November 14, 2022 | 397,740 | 397,626 | ||||||
Series F - 5.09% debentures due November 14, 2042 | 99,223 | 99,217 | ||||||
Series G - 4.19% debentures due June 24, 2024 | 496,379 | — | ||||||
|
|
|
| |||||
| 1,790,390 | 1,293,383 | |||||||
Less current portion | (299,820 | ) | — | |||||
|
|
|
| |||||
Net | $ | 1,490,570 | $ | 1,293,383 | ||||
|
|
|
| |||||
On June 24, 2014, Cameco issued $500,000,000 of Series G debentures and announced the early redemption of the outstanding Series C debentures. The Series G debentures bear interest at a rate of 4.19% per annum. The net proceeds of the issue after deducting expenses were approximately $496,400,000. The debentures mature on June 24, 2024, and are being amortized at an effective interest rate of 4.28%. The $300,000,000 principal amount of the Series C debentures was redeemed on July 16, 2014. The Company incurred total charges of $12,135,000 in relation to the early redemption of these debentures (note 12).
9. Other liabilities
| Jun 30/14 | Dec 31/13 | |||||||
Deferred sales | $ | 44,592 | $ | 55,126 | ||||
Derivatives [note 18] | 6,994 | 30,923 | ||||||
Accrued pension and post-retirement benefit liability | 45,408 | 45,931 | ||||||
Other | 6,634 | 8,085 | ||||||
|
|
|
| |||||
| 103,628 | 140,065 | |||||||
Less current portion | (40,359 | ) | (60,685 | ) | ||||
|
|
|
| |||||
Net | $ | 63,269 | $ | 79,380 | ||||
|
|
|
| |||||
10
10. Provisions
| Reclamation | Waste disposal | Total | ||||||||||
Beginning of year | $ | 573,942 | $ | 16,971 | $ | 590,913 | ||||||
Changes in estimates and discount rates | 95,324 | 384 | 95,708 | |||||||||
Provisions used during the period | (4,141 | ) | (57 | ) | (4,198 | ) | ||||||
Unwinding of discount | 9,835 | 230 | 10,065 | |||||||||
Impact of foreign exchange | 438 | — | 438 | |||||||||
|
|
|
|
|
| |||||||
End of year | $ | 675,398 | $ | 17,528 | $ | 692,926 | ||||||
|
|
|
|
|
| |||||||
Current | $ | 23,878 | $ | 1,885 | $ | 25,763 | ||||||
Non-current | 651,520 | 15,643 | 667,163 | |||||||||
|
|
|
|
|
| |||||||
| $ | 675,398 | $ | 17,528 | $ | 692,926 | |||||||
|
|
|
|
|
| |||||||
11. Share capital
At June 30, 2014, there were 395,776,822 common shares outstanding. Options in respect of 9,106,050 shares are outstanding under the stock option plan and are exercisable up to 2022. For the quarter ended June 30, 2014, 25,957 options were exercised resulting in the issuance of shares (2013—42,333). For the six months ended June 30, 2014, 299,592 options were exercised resulting in the issuance of shares (2013—87,156).
12. Finance costs
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Interest on long-term debt | $ | 16,205 | $ | 15,821 | $ | 31,856 | $ | 34,194 | ||||||||
Unwinding of discount on provisions | 4,950 | 4,094 | 10,065 | 8,156 | ||||||||||||
Other charges | 1,538 | 1,436 | 2,955 | 2,934 | ||||||||||||
Loss on redemption of Series C debentures [note 8] | 12,135 | — | 12,135 | — | ||||||||||||
Foreign exchange losses (gains) | 13,808 | (11,128 | ) | (5,644 | ) | (21,020 | ) | |||||||||
Interest on short-term debt | 943 | 86 | 2,228 | 189 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 49,579 | $ | 10,309 | $ | 53,595 | $ | 24,453 | ||||||||
|
|
|
|
|
|
|
| |||||||||
13. Other income (expense)
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Contract settlement | $ | 28,481 | $ | — | $ | 28,481 | $ | — | ||||||||
Contract termination fee | — | — | (18,304 | ) | — | |||||||||||
Other | 269 | (712 | ) | 752 | (1,738 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 28,750 | $ | (712 | ) | $ | 10,929 | $ | (1,738 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
In the first quarter of 2014, Cameco recorded an early termination fee of $18,304,000 incurred as a result of the cancellation of our toll conversion agreement with Springfields Fuels Ltd., which was to expire in 2016.
During the second quarter, Cameco recorded a gain with respect to a long-term supply contract with one of its utility customers. While the contract is effective for the years 2011 through 2017, the $28,481,000 reflected as income from contract settlement relates only to the deliveries that the customer refused to take in 2012 and 2013. For the remainder of the contract, the customer will be responsible for either buying the full yearly contract quantity, or compensating Cameco for any loss if they do not accept delivery of the full quantities.
11
14. Income taxes
A. Earnings and income taxes by jurisdiction
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Earnings (loss) from continuing operations before income taxes | ||||||||||||||||
Canada | $ | (48,803 | ) | $ | (198,589 | ) | $ | (242,113 | ) | $ | (328,105 | ) | ||||
Foreign | 169,957 | 186,899 | 321,455 | 295,497 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 121,154 | (11,690 | ) | 79,342 | (32,608 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Current income taxes | ||||||||||||||||
Canada | $ | (1,338 | ) | $ | (1,135 | ) | $ | (6,468 | ) | $ | (2,369 | ) | ||||
Foreign | 11,219 | 13,497 | 19,388 | 27,816 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 9,881 | 12,362 | 12,920 | 25,447 | |||||||||||||
Deferred income taxes | ||||||||||||||||
Canada | $ | (10,748 | ) | $ | (46,870 | ) | $ | (54,186 | ) | $ | (78,696 | ) | ||||
Foreign | (4,824 | ) | (10,572 | ) | (9,801 | ) | (20,240 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
| (15,572 | ) | (57,442 | ) | (63,987 | ) | (98,936 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income tax recovery | $ | (5,691 | ) | $ | (45,080 | ) | $ | (51,067 | ) | $ | (73,489 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Cameco has recorded $321,752,000 of deferred tax assets (December 31, 2013—$266,203,000). Based on projections of future income, realization of these deferred tax assets is probable and consequently a deferred tax asset has been recorded.
B. Reassessments
In 2008, as part of the ongoing annual audits of Cameco’s Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2009, which in aggregate have increased Cameco’s income for Canadian tax purposes by approximately $2,795,000,000. Cameco believes it is likely that CRA will reassess Cameco’s tax returns for subsequent years on a similar basis and that these will result in future cash payments on receipt of the reassessments.
Using the methodology we believe that CRA will continue to apply, and including the $2,795,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $5,700,000,000 for the years 2003 through 2013, which would increase Cameco’s income for Canadian tax purposes and result in a related tax expense of approximately $1,600,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2007. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,250,000,000 and $1,300,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. We would be responsible for remitting 50% of the cash taxes and transfer pricing penalties, or between $625,000,000 and $650,000,000, plus related interest and instalment penalties assessed, which would be material to Cameco.
Under Canadian federal and provincial tax legislation, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions and tax loss carryovers. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $215,110,000 already paid as at June 30, 2014 (December 31, 2013—$59,475,000) (note 7).
12
The case on the 2003 reassessment is expected to go to trial in 2015. If this timing is adhered to, we expect to have a Tax Court decision by 2016.
Having regard to advice from its external advisors, Cameco’s opinion is that CRA’s position is incorrect, and Cameco is contesting CRA’s position and expects to recover any cash paid as a result of the reassessments. However, to reflect the uncertainties of CRA’s appeals process and litigation, Cameco has recorded a cumulative tax provision related to this matter for the years 2003 through the current period in the amount of $76,000,000. While the resolution of this matter may result in liabilities that are higher or lower than the reserve, management believes that the ultimate resolution will not be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution, and other unfavourable outcomes for the years 2003 to date could be material to Cameco’s financial position, results of operations and cash flows in the year(s) of resolution.
Further to Cameco’s decision to contest CRA’s reassessments, Cameco is pursuing its appeal rights under Canadian federal and provincial tax legislation.
C. Other comprehensive income (loss)
Other comprehensive income included on the consolidated statements of comprehensive income and the consolidated statements of changes in equity is presented net of income taxes. The following income tax amounts are included in each component of other comprehensive income:
For the three months ended June 30, 2014
| Before tax | Income tax recovery | Net of tax | ||||||||||
Exchange differences on translation of foreign operations | $ | (48,832 | ) | $ | — | $ | (48,832 | ) | ||||
Unrealized losses on available-for-sale assets | (418 | ) | 56 | (362 | ) | |||||||
|
|
|
|
|
| |||||||
| $ | (49,250 | ) | $ | 56 | $ | (49,194 | ) | |||||
|
|
|
|
|
| |||||||
For the three months ended June 30, 2013
| Before tax | Income tax recovery | Net of tax | ||||||||||
Remeasurements of defined benefit liability | $ | 134,300 | $ | (33,575 | ) | $ | 100,725 | |||||
Exchange differences on translation of foreign operations | (37,780 | ) | — | (37,780 | ) | |||||||
Gains on derivatives designated as cash flow hedges | 253 | (63 | ) | 190 | ||||||||
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation | (1,327 | ) | 332 | (995 | ) | |||||||
|
|
|
|
|
| |||||||
| $ | 95,446 | $ | (33,306 | ) | $ | 62,140 | ||||||
|
|
|
|
|
| |||||||
For the six months ended June 30, 2014
| Before tax | Income tax recovery | Net of tax | ||||||||||
Exchange differences on translation of foreign operations | $ | 31,704 | $ | — | $ | 31,704 | ||||||
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation | (400 | ) | 100 | (300 | ) | |||||||
Unrealized losses on available-for-sale assets | (511 | ) | 69 | (442 | ) | |||||||
|
|
|
|
|
| |||||||
| $ | 30,793 | $ | 169 | $ | 30,962 | |||||||
|
|
|
|
|
| |||||||
13
For the six months ended June 30, 2013
| Before tax | Income tax recovery | Net of tax | ||||||||||
Remeasurements of defined benefit liability | $ | 134,300 | $ | (33,575 | ) | $ | 100,725 | |||||
Exchange differences on translation of foreign operations | (3,463 | ) | — | (3,463 | ) | |||||||
Losses on derivatives designated as cash flow hedges | (316 | ) | 79 | (237 | ) | |||||||
Gains on derivatives designated as cash flow hedges transferred to net earnings—discontinued operation | (3,033 | ) | 758 | (2,275 | ) | |||||||
|
|
|
|
|
| |||||||
| $ | 127,488 | $ | (32,738 | ) | $ | 94,750 | ||||||
|
|
|
|
|
| |||||||
15. Per share amounts
Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2014 was 395,689,970 (2013—395,390,127).
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Basic earnings per share computation | ||||||||||||||||
Net earnings attributable to equity holders | $ | 127,208 | $ | 34,354 | $ | 258,544 | $ | 42,892 | ||||||||
Weighted average common shares outstanding | 395,764 | 395,412 | 395,690 | 395,390 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic earnings per common share | $ | 0.32 | $ | 0.09 | $ | 0.65 | $ | 0.11 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share computation | ||||||||||||||||
Net earnings attributable to equity holders | $ | 127,208 | $ | 34,354 | $ | 258,544 | $ | 42,892 | ||||||||
Weighted average common shares outstanding | 395,764 | 395,412 | 395,690 | 395,390 | ||||||||||||
Dilutive effect of stock options | 292 | 71 | 495 | 87 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares outstanding, assuming dilution | 396,056 | 395,483 | 396,185 | 395,477 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per common share | $ | 0.32 | $ | 0.09 | $ | 0.65 | $ | 0.11 | ||||||||
|
|
|
|
|
|
|
| |||||||||
16. Statements of cash flows
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Changes in non-cash working capital: | ||||||||||||||||
Accounts receivable | $ | (4,115 | ) | $ | (556 | ) | $ | 158,925 | $ | 247,159 | ||||||
Inventories | 23,996 | (154,398 | ) | (68,136 | ) | (130,429 | ) | |||||||||
Supplies and prepaid expenses | (5,775 | ) | (14,327 | ) | 50,176 | (13,810 | ) | |||||||||
Accounts payable and accrued liabilities | (92,469 | ) | 19,130 | (163,297 | ) | (16,725 | ) | |||||||||
Reclamation payments | (2,612 | ) | (2,878 | ) | (4,198 | ) | (4,450 | ) | ||||||||
Other | (13,221 | ) | (2,003 | ) | (20,662 | ) | (11,404 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Other operating items | $ | (94,196 | ) | $ | (155,032 | ) | $ | (47,192 | ) | $ | 70,341 | |||||
|
|
|
|
|
|
|
| |||||||||
14
17. Share-based compensation plans
Stock option plan
The Company has established a stock option plan under which options to purchase common shares may be granted to 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.
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 27,854,379 shares have been issued.
The inputs used in the measurement of the fair values at grant date were as follows:
| 2014 | 2013 | |||||||
Number of options granted | 765,146 | 1,840,932 | ||||||
Average strike price | $ | 26.81 | $ | 22.00 | ||||
Expected dividend | $ | 0.40 | $ | 0.40 | ||||
Expected volatility | 33 | % | 41 | % | ||||
Risk-free interest rate | 1.5 | % | 1.2 | % | ||||
Expected life of option | 4.4 years | 4.4 years | ||||||
Expected forfeitures | 8 | % | 8 | % | ||||
Weighted average grant date fair values | $ | 6.79 | $ | 6.51 | ||||
Cameco records compensation expense with an offsetting credit to contributed surplus to reflect the estimated fair value of the equity-settled share-based compensation plans granted to employees. During the period, the Company recognized the following expenses under these plans:
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Stock option plan | $ | 1,628 | $ | 2,725 | $ | 5,160 | $ | 9,209 | ||||||||
Performance share unit plan | 1,421 | 1,310 | 2,357 | 2,472 | ||||||||||||
Restricted share unit plan | 911 | 148 | 1,321 | 297 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 3,960 | $ | 4,183 | $ | 8,838 | $ | 11,978 | ||||||||
|
|
|
|
|
|
|
| |||||||||
18. Financial instruments
A. Fair value hierarchy
The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability.
15
All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities:
Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities.
Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.
The following tables summarize the carrying amounts and fair values of Cameco’s financial instruments that are measured at fair value, including their levels in the fair value hierarchy:
As at June 30, 2014
| Fair value | ||||||||||||||||
| Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Short-term investments | $ | 138,258 | $ | 138,258 | $ | — | $ | 138,258 | ||||||||
Derivative assets [note 7] | ||||||||||||||||
Foreign currency contracts | 30,426 | — | 30,426 | 30,426 | ||||||||||||
Interest rate contracts | 2,443 | — | 2,443 | 2,443 | ||||||||||||
Derivative liabilities [note 9] | ||||||||||||||||
Foreign currency contracts | (6,994 | ) | — | (6,994 | ) | (6,994 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | 164,133 | $ | 138,258 | $ | 25,875 | $ | 164,133 | ||||||||
|
|
|
|
|
|
|
| |||||||||
As at December 31, 2013
| Fair value | ||||||||||||||||
| Carrying value | Level 1 | Level 2 | Total | |||||||||||||
Derivative assets [note 7] | ||||||||||||||||
Foreign currency contracts | $ | 3,775 | $ | — | $ | 3,775 | $ | 3,775 | ||||||||
Interest rate contracts | 3,616 | — | 3,616 | 3,616 | ||||||||||||
Derivative liabilities [note 9] | ||||||||||||||||
Foreign currency contracts | (30,907 | ) | — | (30,907 | ) | (30,907 | ) | |||||||||
Share purchase options | (16 | ) | (16 | ) | — | (16 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | (23,532 | ) | $ | (16 | ) | $ | (23,516 | ) | $ | (23,532 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value.
There were no transfers between level 1, level 2, or level 3 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date.
B. Financial instruments measured at fair value
Cameco measures its short-term investments, derivative financial instruments, and certain investments in equity securities at fair value. Short-term investments and investments in publicly held equity securities are classified as a recurring level 1 fair value measurement, and derivative financial instruments are classified as a recurring level 2 fair value measurement.
16
Short-term investments represent available-for-sale money market instruments. The fair value of these instruments is determined using quoted market yields as of the reporting date. The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date.
Foreign currency derivatives consist of foreign currency forward contracts, and foreign currency swaps. The fair value of foreign currency derivatives is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date.
Interest rate derivatives consist of interest rate swap contracts, and interest rate caps. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves. The fair value of interest rate caps is determined based on broker quotes observed in active markets at the reporting date.
Where applicable, the fair value of the derivatives reflects the credit risk of the instrument, and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date.
C. Financial instruments not measured at fair value
The carrying value of Cameco’s cash and cash equivalents, receivables, payables and accrued liabilities is assumed to approximate the fair value as a result of the short-term nature of the instruments. The carrying value of Cameco’s short-term debt (commercial paper and promissory notes), and long-term debt (debentures) is assumed to approximate the fair value as a result of the variable interest rate associated with the instruments, or the fixed interest rate of the instruments being similar to market rates.
D. Derivatives
The following tables summarize the fair value of derivatives and classification on the consolidated statements of financial position:
| Jun 30/14 | Dec 31/13 | |||||||
Non-hedge derivatives | ||||||||
Foreign currency contracts | $ | 23,432 | $ | (27,132 | ) | |||
Interest rate contracts | 2,443 | 3,616 | ||||||
Share purchase options | — | (16 | ) | |||||
|
|
|
| |||||
Net | $ | 25,875 | $ | (23,532 | ) | |||
|
|
|
| |||||
Classification | ||||||||
Current portion of long-term receivables, investments and other [note 7] | $ | 24,201 | $ | 3,775 | ||||
Long-term receivables, investments and other [note 7] | 8,668 | 3,616 | ||||||
Current portion of other liabilities [note 9] | (6,994 | ) | (30,923 | ) | ||||
|
|
|
| |||||
Net | $ | 25,875 | $ | (23,532 | ) | |||
|
|
|
| |||||
17
The following table summarizes different components of the gains (losses) on derivatives included in net earnings:
| Three months ended | Six months ended | |||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||
Non-hedge derivatives | ||||||||||||||||
Foreign currency contracts | $ | 58,978 | $ | (38,596 | ) | $ | 14 | $ | (63,106 | ) | ||||||
Interest rate contracts | 1,389 | (614 | ) | 1,449 | (188 | ) | ||||||||||
Share purchase options | — | — | 16 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net | $ | 60,367 | $ | (39,210 | ) | $ | 1,479 | $ | (63,294 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
19. Segmented information
Cameco has three reportable segments: uranium, fuel services and NUKEM. 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 NUKEM segment acts as a market intermediary between uranium producers and nuclear-electric utilities.
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. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arm’s length basis and are eliminated on consolidation.
For the three months ended June 30, 2014
| Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue | $ | 375,855 | $ | 70,169 | $ | 61,832 | $ | (5,885 | ) | $ | 501,971 | |||||||||
Expenses | ||||||||||||||||||||
Cost of products and services sold | 204,638 | 48,513 | 48,369 | (6,491 | ) | 295,029 | ||||||||||||||
Depreciation and amortization | 60,914 | 5,788 | 821 | 3,588 | 71,111 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cost of sales | 265,552 | 54,301 | 49,190 | (2,903 | ) | 366,140 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit (loss) | 110,303 | 15,868 | 12,642 | (2,982 | ) | 135,831 | ||||||||||||||
Administration | — | — | 2,959 | 33,477 | 36,436 | |||||||||||||||
Exploration | 9,318 | — | — | — | 9,318 | |||||||||||||||
Research and development | — | — | — | 421 | 421 | |||||||||||||||
Loss on sale of assets | 6,665 | — | — | — | 6,665 | |||||||||||||||
Finance costs | — | — | 605 | 48,974 | 49,579 | |||||||||||||||
Losses (gains) on derivatives | — | — | 739 | (61,106 | ) | (60,367 | ) | |||||||||||||
Finance income | — | — | (2 | ) | (2,092 | ) | (2,094 | ) | ||||||||||||
Share of loss from equity-accounted investees | 162 | 3,307 | — | — | 3,469 | |||||||||||||||
Other income | (28,481 | ) | (269 | ) | — | — | (28,750 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Earnings (loss) before income taxes | 122,639 | 12,830 | 8,341 | (22,656 | ) | 121,154 | ||||||||||||||
Income tax recovery | (5,691 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Net earnings from continuing operations | $ | 126,845 | ||||||||||||||||||
|
| |||||||||||||||||||
18
For the three months ended June 30, 2013
| Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue | $ | 304,539 | $ | 65,138 | $ | 52,720 | $ | (1,578 | ) | $ | 420,819 | |||||||||
Expenses | ||||||||||||||||||||
Cost of products and services sold | 167,168 | 49,521 | 41,278 | (1,290 | ) | 256,677 | ||||||||||||||
Depreciation and amortization | 46,651 | 5,841 | 7,964 | 4,670 | 65,126 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cost of sales | 213,819 | 55,362 | 49,242 | 3,380 | 321,803 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit (loss) | 90,720 | 9,776 | 3,478 | (4,958 | ) | 99,016 | ||||||||||||||
Administration | — | — | 3,094 | 39,826 | 42,920 | |||||||||||||||
Exploration | 16,392 | — | — | — | 16,392 | |||||||||||||||
Research and development | — | — | — | 2,180 | 2,180 | |||||||||||||||
Loss on sale of assets | 129 | — | — | — | 129 | |||||||||||||||
Finance costs | — | — | 3,748 | 6,561 | 10,309 | |||||||||||||||
Losses (gains) on derivatives | — | — | (6,599 | ) | 45,809 | 39,210 | ||||||||||||||
Finance income | — | — | (45 | ) | (1,850 | ) | (1,895 | ) | ||||||||||||
Share of loss (earnings) from equity-accounted investees | (594 | ) | 1,343 | — | — | 749 | ||||||||||||||
Other expense | — | — | — | 712 | 712 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Earnings (loss) before income taxes | 74,793 | 8,433 | 3,280 | (98,196 | ) | (11,690 | ) | |||||||||||||
Income tax recovery | (45,080 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Net earnings from continuing operations | $ | 33,390 | ||||||||||||||||||
|
| |||||||||||||||||||
For the six months ended June 30, 2014
| Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue | $ | 723,981 | $ | 110,447 | $ | 93,622 | $ | (6,850 | ) | $ | 921,200 | |||||||||
Expenses | ||||||||||||||||||||
Cost of products and services sold | 385,560 | 82,172 | 80,573 | (7,979 | ) | 540,326 | ||||||||||||||
Depreciation and amortization | 109,238 | 10,514 | 3,515 | 14,178 | 137,445 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cost of sales | 494,798 | 92,686 | 84,088 | 6,199 | 677,771 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit (loss) | 229,183 | 17,761 | 9,534 | (13,049 | ) | 243,429 | ||||||||||||||
Administration | — | — | 6,414 | 75,235 | 81,649 | |||||||||||||||
Exploration | 23,738 | — | — | — | 23,738 | |||||||||||||||
Research and development | — | — | — | 1,693 | 1,693 | |||||||||||||||
Loss on sale of assets | 5,556 | — | — | — | 5,556 | |||||||||||||||
Finance costs | — | — | 842 | 52,753 | 53,595 | |||||||||||||||
Losses (gains) on derivatives | — | — | 1,694 | (3,173 | ) | (1,479 | ) | |||||||||||||
Finance income | — | — | (2 | ) | (3,237 | ) | (3,239 | ) | ||||||||||||
Share of loss from equity-accounted investees | 236 | 13,267 | — | — | 13,503 | |||||||||||||||
Other expense (income) | (28,964 | ) | 18,035 | — | — | (10,929 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Earnings (loss) before income taxes | 228,617 | (13,541 | ) | 586 | (136,320 | ) | 79,342 | |||||||||||||
Income tax recovery | (51,067 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Net earnings from continuing operations | $ | 130,409 | ||||||||||||||||||
|
| |||||||||||||||||||
19
For the six months ended June 30, 2013
| Uranium | Fuel services | NUKEM | Other | Total | ||||||||||||||||
Revenue | $ | 551,776 | $ | 130,868 | $ | 183,315 | $ | (1,235 | ) | $ | 864,724 | |||||||||
Expenses | ||||||||||||||||||||
Cost of products and services sold | 311,152 | 99,096 | 144,211 | (1,290 | ) | 553,169 | ||||||||||||||
Depreciation and amortization | 66,131 | 10,841 | 31,554 | 8,965 | 117,491 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cost of sales | 377,283 | 109,937 | 175,765 | 7,675 | 670,660 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross profit (loss) | 174,493 | 20,931 | 7,550 | (8,910 | ) | 194,064 | ||||||||||||||
Administration | — | — | 6,785 | 92,026 | 98,811 | |||||||||||||||
Exploration | 36,575 | — | — | — | 36,575 | |||||||||||||||
Research and development | — | — | — | 3,953 | 3,953 | |||||||||||||||
Loss on sale of assets | 129 | — | — | — | 129 | |||||||||||||||
Finance costs | — | — | 6,446 | 18,007 | 24,453 | |||||||||||||||
Losses (gains) on derivatives | — | — | (5,273 | ) | 68,567 | 63,294 | ||||||||||||||
Finance income | — | — | (58 | ) | (4,304 | ) | (4,362 | ) | ||||||||||||
Share of loss (earnings) from equity-accounted investees | (76 | ) | 2,157 | — | — | 2,081 | ||||||||||||||
Other expense | — | — | — | 1,738 | 1,738 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Earnings (loss) before income taxes | 137,865 | 18,774 | (350 | ) | (188,897 | ) | (32,608 | ) | ||||||||||||
Income tax recovery | (73,489 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
Net earnings from continuing operations | $ | 40,881 | ||||||||||||||||||
|
| |||||||||||||||||||
20. Related parties
The shares of Cameco are widely held and no shareholder, resident in Canada, is allowed to own more than 25% of the Company’s outstanding common shares, either individually or together with associates. A non-resident of Canada is not allowed to own more than 15%.
Related party transactions
| Transaction value Three months ended | Transaction value Six months ended | Balance outstanding as at | ||||||||||||||||||||||
| Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | Jun 30/14 | Jun 30/13 | |||||||||||||||||||
Joint arrangements | ||||||||||||||||||||||||
Interest income (Inkai)(a) | $ | 519 | $ | 518 | $ | 1,049 | $ | 1,012 | $ | 90,905 | $ | 91,368 | ||||||||||||
Associates | ||||||||||||||||||||||||
Interest expense | — | (74 | ) | (5 | ) | (166 | ) | — | (28,634 | ) | ||||||||||||||
| (a) | Disclosures in respect of transactions with joint arrangements represent the amount of such transactions which do not eliminate on proportionate consolidation. |
Through unsecured shareholder loans, Cameco has agreed to fund Inkai’s project development costs as well as further evaluation on block 3. The limit of the loan facilities are $268,650,000 (US) and advances under these facilities bear interest at a rate of LIBOR plus 2%. At June 30, 2014, $212,871,000 (US) of principal and interest was outstanding (December 31, 2013—$224,047,000 (US)).
In 2008, a promissory note in the amount of $73,344,000 (US) was issued to finance the acquisition of GE-Hitachi Global Laser Enrichment LLC (GLE). No balance was outstanding under this promissory note at June 30, 2014. At December 31, 2013, $10,010,000 (US) of principal and interest was outstanding.
20
21. Subsequent event
In July 2014, a decision was made by the majority partner of GLE to significantly reduce funding of the project. In accordance with the provisions of IAS 36,Impairment of Assets, Cameco considers this to be an indicator that our investment in GLE could potentially be impaired and accordingly, we are required to estimate the asset’s recoverable amount. Cameco is in the process of evaluating how its investment in GLE will be impacted as a result of this decision. The carrying value of Cameco’s investment in GLE at June 30, 2014 was $165,038,000 (US).
21