##### 



EXHIBIT 2 Cameco Corporation 2004 Consolidated Audited Financial Statements




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##### 



CAMECO CORPORATION 2004 CONSOLIDATED FINANCIAL STATEMENTS January 26, 2005




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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. The integrity and reliability of Camecos reporting systems are achieved through the use of formal
policies and procedures, the careful selection of employees and appropriate delegation of authority
and division of responsibilities. Internal accounting controls are monitored by the internal
auditor. Camecos code of ethics, which is communicated to all levels in the organization,
requires employees to maintain high standards in their conduct of the corporations affairs. Our shareholders independent auditors, KPMG LLP, whose report on their examination follows, have
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. /s/ O. Kim Goheen
O. Kim Goheen
Senior Vice-President and Chief Financial Officer January 26, 2005 1




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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, 2004 and
2003 and the consolidated statements of earnings, retained earnings and cash flows for each of the
years in the three-year period ended December 31, 2004. 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. 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, 2004 and 2003 and the results of its
operations and its cash flows for each of the years in the three year period ended December 31,
2004 in accordance with Canadian generally accepted accounting principles. /s/ KPMG LLP
Chartered Accountants Saskatoon, Canada January 26, 2005, except as to note 21(a) which is as of February 28, 2005 2




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Cameco Corporation
CONSOLIDATED BALANCE SHEETS (Restated)As at December 31
    
    2004
    
    
    2003(Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    189,532
    
    
    $
    84,069Accounts receivable
    
    
    182,951
    
    
    
    181,337Inventories [note 3]
    
    
    386,936
    
    
    
    316,435Supplies and prepaid expenses
    
    
    90,923
    
    
    
    49,380Current portion of long-term receivables, investments and other [note 5]
    
    
    898
    
    
    
    54,866851,240
    
    
    
    686,087Property, plant and equipment [note 4]
    
    
    2,281,418
    
    
    
    2,119,784Long-term receivables, investments and other [note 5]
    
    
    732,262
    
    
    
    625,317Goodwill [note 19]
    
    
    187,184
    
    
    
    Total assets
    
    $
    4,052,104
    
    
    $
    3,431,188Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    231,697
    
    
    $
    167,002Dividends payable
    
    
    8,652
    
    
    
    8,515Current portion of long-term debt [note 6]
    
    
    
    
    
    
    4,331Current portion of other liabilities [note 8]
    
    
    17,317
    
    
    
    1,563Future income taxes [note 13]
    
    
    38,653
    
    
    
    24,237296,319
    
    
    
    205,648Long-term debt [note 6]
    
    
    518,603
    
    
    
    601,048Provision for reclamation [note 7]
    
    
    166,941
    
    
    
    150,444Other liabilities [note 8]
    
    
    31,086
    
    
    
    36,196Future income taxes [note 13]
    
    
    533,024
    
    
    
    528,2501,545,973
    
    
    
    1,521,586Minority interest
    
    
    345,611
    
    
    
    14,690Shareholders equityShare capital [note 9]
    
    
    750,559
    
    
    
    708,345Contributed surplus [note 9]
    
    
    511,674
    
    
    
    505,400Retained earnings
    
    
    938,809
    
    
    
    694,423Cumulative translation account [note 10]
    
    
    (40,522
    )
    
    
    (13,256
    )2,160,520
    
    
    
    1,894,912Total liabilities and shareholders equity
    
    $
    4,052,104
    
    
    $
    3,431,188
 Commitments and contingencies [notes 7,16,21,22] See accompanying notes to consolidated financial statements.Approved by the board of directors 3




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Cameco Corporation
CONSOLIDATED STATEMENTS OF EARNINGS (Restated)
    
    
    (Restated)For the year ended December 31
    
    2004
    
    
    2003
    
    
    2002(Thousands)Revenue fromProducts and services
    
    $
    1,048,487
    
    
    $
    826,946
    
    
    $
    748,334ExpensesProducts and services sold
    
    
    623,125
    
    
    
    538,233
    
    
    
    486,155Depreciation, depletion and reclamation
    
    
    180,229
    
    
    
    125,866
    
    
    
    118,327Administration
    
    
    69,565
    
    
    
    47,610
    
    
    
    41,693Exploration
    
    
    35,972
    
    
    
    21,913
    
    
    
    21,532Interest and other [note 11]
    
    
    14,264
    
    
    
    16,653
    
    
    
    7,612Research and development
    
    
    1,911
    
    
    
    1,717
    
    
    
    2,257Gain on sale of assets
    
    
    (1,958
    )
    
    
    
    
    
    
    (2,670
    )923,108
    
    
    
    751,992
    
    
    
    674,906Earnings from operations
    
    
    125,379
    
    
    
    74,954
    
    
    
    73,428Earnings from Bruce Power [note 16]
    
    
    120,722
    
    
    
    107,921
    
    
    
    15,769Other income (expenses) [note 12]
    
    
    133,421
    
    
    
    429
    
    
    
    (878
    )Earnings before income taxes and minority interest
    
    
    379,522
    
    
    
    183,304
    
    
    
    88,319Income tax expense (recovery) [note 13]
    
    
    73,285
    
    
    
    (21,443
    )
    
    
    41,953Minority interest
    
    
    27,452
    
    
    
    (3,416
    )
    
    
    (871
    )Net earnings
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Basic earnings per common share [note 23]
    
    $
    1.63
    
    
    $
    1.24
    
    
    $
    0.28Diluted earnings per common share [note 23]
    
    $
    1.56
    
    
    $
    1.22
    
    
    $
    0.28
 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Restated)
    
    
    (Restated)For the year ended December 31
    
    2004
    
    
    2003
    
    
    2002(Thousands)Retained earnings at beginning of year,As previously reported
    
    $
    665,377
    
    
    $
    494,341
    
    
    $
    478,700Change in accounting policy for financial instruments [note 2]
    
    
    29,046
    
    
    
    25,569
    
    
    
    21,855As restated
    
    $
    694,423
    
    
    $
    519,910
    
    
    $
    500,555Net earnings
    
    
    278,785
    
    
    
    208,163
    
    
    
    47,237Dividends on common shares
    
    
    (34,399
    )
    
    
    (33,650
    )
    
    
    (27,882
    )Retained earnings at end of year
    
    $
    938,809
    
    
    $
    694,423
    
    
    $
    519,910
 See accompanying notes to consolidated financial statements. 4




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Cameco Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated)
    
    
    (Restated)For the year ended December 31
    
    2004
    
    
    2003
    
    
    2002(Thousands)Operating activitiesNet earnings
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Items not requiring (providing) cash:Depreciation, depletion and reclamation
    
    
    180,229
    
    
    
    125,866
    
    
    
    118,327Provision for future taxes [note 13]
    
    
    50,234
    
    
    
    (31,662
    )
    
    
    31,684Deferred charges (revenue) recognized
    
    
    (19,085
    )
    
    
    9,331
    
    
    
    1,375Unrealized gains on derivatives
    
    
    (7,217
    )
    
    
    
    
    
    
    Stock-based compensation [note 17]
    
    
    7,206
    
    
    
    2,439
    
    
    
    Gain on sale of assets
    
    
    (1,958
    )
    
    
    
    
    
    
    (2,670
    )Earnings from Bruce Power
    
    
    (120,722
    )
    
    
    (107,921
    )
    
    
    (15,769
    )Equity in (earnings) loss from associated companies [note 12]
    
    
    (990
    )
    
    
    1,494
    
    
    
    1,083Other income
    
    
    (124,050
    )
    
    
    
    
    
    
    Minority interest
    
    
    27,452
    
    
    
    (3,416
    )
    
    
    (871
    )Other operating items [note 14]
    
    
    (41,842
    )
    
    
    45,462
    
    
    
    60,492Cash provided by operations
    
    
    228,042
    
    
    
    249,756
    
    
    
    240,888Investing
activitiesAcquisition of net business assets, net of cash acquired
    
    
    (3,717
    )
    
    
    
    
    
    
    Additions to property, plant and equipment
    
    
    (148,273
    )
    
    
    (166,840
    )
    
    
    (97,895
    )Increase in long-term receivables, investments and other
    
    
    (10,466
    )
    
    
    (296,608
    )
    
    
    (47,205
    )Decrease in long-term receivables, investments and other
    
    
    
    
    
    
    
    
    
    
    58,296Proceeds on sale of property, plant and equipment
    
    
    1,769
    
    
    
    242
    
    
    
    101Cash used in investing
    
    
    (160,687
    )
    
    
    (463,206
    )
    
    
    (86,703
    )Financing activitiesShort-term financing
    
    
    14,544
    
    
    
    
    
    
    
    Decrease in debt
    
    
    (169,083
    )
    
    
    (25,848
    )
    
    
    (130,295
    )Increase in debt
    
    
    100,300
    
    
    
    58,659
    
    
    
    5,987Restricted cash
    
    
    
    
    
    
    342
    
    
    
    11,138Issue of convertible debentures, net of issue costs
    
    
    
    
    
    
    223,032
    
    
    
    Issue of shares
    
    
    41,281
    
    
    
    27,411
    
    
    
    10,903Subsidiary issue of shares
    
    
    101,234
    
    
    
    
    
    
    
    Dividends
    
    
    (34,262
    )
    
    
    (32,275
    )
    
    
    (27,944
    )Cash provided by (used in) financing
    
    
    54,014
    
    
    
    251,321
    
    
    
    (130,211
    )Increase in cash during the year
    
    
    121,369
    
    
    
    37,871
    
    
    
    23,974Exchange rate changes on foreign currency cash balances
    
    
    (15,906
    )
    
    
    (11,898
    )
    
    
    385Cash at beginning of year
    
    
    84,069
    
    
    
    58,096
    
    
    
    33,737Cash at
end of year
    
    $
    189,532
    
    
    $
    84,069
    
    
    $
    58,096Supplemental cash flow disclosureInterest paid
    
    $
    35,968
    
    
    $
    31,026
    
    
    $
    33,632Income taxes paid
    
    $
    18,262
    
    
    $
    11,537
    
    
    $
    5,309
 See accompanying notes to consolidated financial statements. 5




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Notes to Consolidated Financial StatementsFor the years ended December 31, 2004, 2003 and 2002 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 and conversion of uranium for sale
as fuel for generating electricity in nuclear power reactors in Canada and other countries. The
company has an interest in the Bruce Power electrical generation plant in Ontario. Camecos
52.7% subsidiary Centerra Gold Inc. (Centerra) is involved in the exploration for and the
development, mining and sale of gold. 2. Accounting Policies (a) Significant Accounting Policies A summary of significant accounting policies follows the notes to the consolidated
financial statements. (b) Changes in Accounting Policies (i) Financial Instruments Effective January 1, 2004, Cameco has adopted the amendments to CICA Handbook Section
3860 Financial Instruments. This change in accounting policy was applied retroactively
and, accordingly, the consolidated financial statements of prior periods were restated.
The amendments to this section address the balance sheet presentation of financial
instruments as liabilities or equity. Accordingly, amounts previously reflected as
equity charges are now recorded as interest expense. In addition, an increased amount
of interest has been capitalized to property, plant and equipment. The cumulative
effect of the change in policy on the balance sheets and statements of earnings is as
follows: 2003
    
    
    2002(Thousands)Long-term receivables, investments and other
    
    $
    14,067
    
    
    $
    7,122Property, plant and equipment
    
    
    49,233
    
    
    
    43,339$
    63,300
    
    
    $
    50,461Future income taxes
    
    $
    26,576
    
    
    $
    21,204Long-term debt
    
    
    361,670
    
    
    
    197,450Shareholders equity
    
    
    (324,946
    )
    
    
    (168,193
    )$
    63,300
    
    
    $
    50,461Net earnings
    
    $
    3,477
    
    
    $
    3,714Earnings per share
    
    $
    0.02
    
    
    $
    0.02
 For the year ended December 31, 2004, the change in policy had a positive impact on net
earnings of $7,100,000, which caused a $0.04 change in the basic earnings per share. (ii) Hedging Relationships Effective January 1, 2004, Cameco adopted the new Canadian Accounting Guideline,
Hedging Relationships, which established new criteria for hedging relationships in
effect on or after January 1, 2004. To qualify for hedge accounting, the hedging
relationship must be appropriately documented and there must be reasonable assurance,
both at the inception and throughout the term of the hedge, that the hedging
relationship will be effective. Effectiveness requires a high degree of correlation of
changes in fair values or cash flows between the hedged item and the hedge. The
adoption of this accounting guideline had no material impact on the consolidated
financial statements. 6




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3.
    Inventories  2004
    
    
    2003(Thousands)UraniumConcentrate
    
    $
    312,042
    
    
    $
    260,211Broken ore
    
    
    12,123
    
    
    
    9,680324,165
    
    
    
    269,891Conversion
    
    
    36,098
    
    
    
    44,472GoldFinished
    
    
    12,651
    
    
    
    297Broken ore
    
    
    14,022
    
    
    
    1,77526,673
    
    
    
    2,072Total
    
    $
    386,936
    
    
    $
    316,435
  4.
    Property, Plant and Equipment  Accumulated
    
    
    
    
    
    
    (Restated)Depreciation
    
    
    2004
    
    
    2003Cost
    
    
    and Depletion
    
    
    Net
    
    
    Net(Thousands)UraniumMining
    
    $
    2,649,862
    
    
    $
    1,297,333
    
    
    $
    1,352,529
    
    
    $
    1,397,118Non-producing
    
    
    446,753
    
    
    
    
    
    
    
    446,753
    
    
    
    389,605Conversion
    
    
    285,243
    
    
    
    150,574
    
    
    
    134,669
    
    
    
    126,971GoldMining
    
    
    833,032
    
    
    
    511,831
    
    
    
    321,201
    
    
    
    55,930Non-producing
    
    
    2,970
    
    
    
    
    
    
    
    2,970
    
    
    
    130,925Other
    
    
    40,374
    
    
    
    17,078
    
    
    
    23,296
    
    
    
    19,235Total
    
    $
    4,258,234
    
    
    $
    1,976,816
    
    
    $
    2,281,418
    
    
    $
    2,119,784
 7




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##### 



5.
    Long-Term Receivables, Investments and Other (Restated)2004
    
    
    2003(Thousands)Bruce Power L.P. [note 16]Interest in Bruce Power L.P.
    
    $
    569,013
    
    
    $
    456,520Loan receivable
    
    
    75,195
    
    
    
    77,028Kumtor Gold CompanySubordinated loan - principal
    
    
    
    
    
    
    52,590Subordinated loan - interest
    
    
    
    
    
    
    2,261Reclamation trust fund
    
    
    4,893
    
    
    
    1,677Investments in associated companiesInvestment in Technology Commercialization International, Inc.
    
    
    2,647
    
    
    
    4,889Investment in UEX Corporation (market $81,054)
    
    
    8,339
    
    
    
    3,791Portfolio investmentsEnergy Resources of Australia Ltd (market $79,000)
    
    
    18,208
    
    
    
    18,208General Hydrogen Corporation
    
    
    6,323
    
    
    
    6,323Deferred chargesDebt issue costs
    
    
    6,934
    
    
    
    14,738Gold hedges
    
    
    9,894
    
    
    
    5,724Currency hedges
    
    
    
    
    
    
    234Investment in Huron Wind L.P.
    
    
    2,616
    
    
    
    2,725Advances receivable
    
    
    15,104
    
    
    
    16,693Accrued pension benefit asset [note 18]
    
    
    10,132
    
    
    
    10,630Other
    
    
    3,862
    
    
    
    6,152733,160
    
    
    
    680,183Less current portion
    
    
    (898
    )
    
    
    (54,866
    )Net
    
    $
    732,262
    
    
    $
    625,317
  6.
    Long-Term Debt (Restated)2004
    
    
    2003(Thousands)Convertible debentures
    
    $
    202,370
    
    
    $
    200,120Commercial paper
    
    
    166,233
    
    
    
    65,934Debentures
    
    
    150,000
    
    
    
    150,000Preferred securities
    
    
    
    
    
    
    161,550Kumtor Gold CompanySenior debt
    
    
    
    
    
    
    7,324Subordinated debt
    
    
    
    
    
    
    8,616Equipment loan
    
    
    
    
    
    
    11,835518,603
    
    
    
    605,379Less current portion
    
    
    
    
    
    
    (4,331
    )Net
    
    $
    518,603
    
    
    $
    601,048
 8




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##### 



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 [note 9], resulting in an effective interest rate of 6.85%. As a result of the
change in accounting policy regarding financial instruments, the amount is reflected as
contributed surplus. Following Camecos three-for-one stock split on December 29, 2004, the
conversion price is $21.67 per share, a rate of approximately 46.2 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, 2004 and was approximately $477,250,000. Cameco has a $500,000,000 five-year unsecured revolving credit facility that is available until
November 30, 2009. Cameco may borrow directly from investors by issuing commercial paper.
Commercial paper outstanding at December 31, 2004 was $166,233,000 (Cdn) (2003 - $61,419,000
(Cdn) and $3,493,000 (US)) and bears interest at an average rate of 2.5% (2003 - 2.6%). These
amounts are classified as long-term debt. Cameco has $50,000,000 outstanding in senior unsecured debentures that bear interest at a rate
of 7.0% per annum and will mature July 6, 2006. Cameco also has $100,000,000 outstanding in
senior unsecured debentures that bear interest at a rate of 6.9% per annum and will mature July
12, 2006. Cameco had issued $125,000,000 (US), 8.75% preferred securities in denominations of $25 (US)
each due September 30, 2047 accruing interest from the date of issuance payable quarterly
commencing December 31, 1998. On December 17, 2004, Cameco redeemed all of the outstanding $125,000,000 (US) of preferred
securities. As a result of the redemption, Cameco recorded a pre-tax charge of $6,817,000 (Cdn)
to net earnings [note 11] for the remaining unamortized portion of the issue costs. Cameco has $243,200,000 ($165,900,000 (Cdn) and $64,200,000 (US)) in committed letter of credit
facilities. Outstanding letters of credit at December 31, 2004 amounted to $203,570,000 (2003 -
$202,745,000). The majority of the letters of credit relate to future decommissioning and
reclamation liabilities [note 7]. The table below represents currently scheduled maturities of long-term debt over the next five
years. (Thousands)2005
    
    $
    2006
    
    
    150,0002007
    
    
    2008
    
    
    2009
    
    
    166,233Thereafter
    
    
    202,370Total
    
    $
    518,603
 9




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##### 



7.
    Provision for ReclamationCamecos estimates of future asset retirement obligations are based on reclamation standards
that meet or exceed 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 $237,000,000. These estimates are reviewed by Cameco technical personnel at least every two
years or more frequently as required by regulatory agencies. In connection with future
decommissioning and reclamation costs, Cameco has provided financial assurances of $163,643,000
in the form of letters of credit to satisfy current regulatory requirements.Following is a reconciliation of the total liability for asset retirement obligations: 2004
    
    
    2003
    
    
    2002(Thousands)Balance, beginning of year
    
    $
    150,444
    
    
    $
    159,344
    
    
    $
    138,445Acquisition of Kumtor interest [note 20]
    
    
    14,852
    
    
    
    
    
    
    
    Additions to liabilities
    
    
    2,074
    
    
    
    
    
    
    
    19,600Liabilities settled
    
    
    (4,357
    )
    
    
    (13,214
    )
    
    
    (6,878
    )Accretion expense
    
    
    9,246
    
    
    
    8,757
    
    
    
    8,077Impact of foreign exchange
    
    
    (5,318
    )
    
    
    (4,443
    )
    
    
    100Balance, end of year
    
    $
    166,941
    
    
    $
    150,444
    
    
    $
    159,344
  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 - $237,000,000.(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 - 7.5% for operations in North America; 6.8% for operations in Kyrgyzstan; 8.5% for
operations in Mongolia.  The asset retirement obligations liability is comprised of: 2004
    
    
    2003(Thousands)Uranium
    
    $
    96,803
    
    
    $
    92,279Conversion
    
    
    47,090
    
    
    
    48,706Gold
    
    
    23,048
    
    
    
    9,459Total
    
    $
    166,941
    
    
    $
    150,444
 10




---



##### 



8.
    Other Liabilities 2004
    
    
    2003(Thousands)Deferred revenueCurrency hedges
    
    $
    22,975
    
    
    $
    24,722Gold hedges
    
    
    
    
    
    
    3,377Short-term financing
    
    
    14,544
    
    
    
    Accrued post-retirement benefit liability [note 18]
    
    
    4,460
    
    
    
    3,389Other
    
    
    6,424
    
    
    
    6,27148,403
    
    
    
    37,759Less current portion
    
    
    (17,317
    )
    
    
    (1,563
    )Net
    
    $
    31,086
    
    
    $
    36,196
  9.
    Share CapitalOn December 9, 2004, the Board of Directors of Cameco approved a split of the companys
outstanding common shares on a three-for-one basis. The stock split was effected in the form of
a stock dividend of two additional common shares for each share owned by shareholders of record
at the close of business on December 31, 2004. The companys common shares commenced trading on
a split basis on December 29, 2004 on the Toronto Stock Exchange and January 7, 2005 on the New
York Stock Exchange. All equity-based benefit plans have been adjusted to reflect the stock
split. All share and per-share data have been adjusted to reflect the stock split. If this
data had not been adjusted, basic earnings per common share would have been $4.89 (2003 - $3.71;
2002 - $0.85).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 (Restated)
    
    
    (Restated)Number Issued
    
    2004
    
    
    2003
    
    
    2002(Number of Shares)Beginning of year
    
    
    170,308,269
    
    
    
    167,957,619
    
    
    
    167,014,320Issued:Stock option plan [note 17]
    
    
    2,731,800
    
    
    
    2,350,650
    
    
    
    943,299Issued share capital
    
    
    173,040,069
    
    
    
    170,308,269
    
    
    
    167,957,619
 Amount
    
    2004
    
    
    2003
    
    
    2002(thousands)Beginning of year
    
    $
    711,063
    
    
    $
    685,491
    
    
    $
    676,404Issued:Stock option plan [note 17]
    
    
    40,082
    
    
    
    25,572
    
    
    
    9,087Issued share capital
    
    
    751,145
    
    
    
    711,063
    
    
    
    685,491Less loans receivable [note 17]
    
    
    (586
    )
    
    
    (2,718
    )
    
    
    (4,557
    )End of year
    
    $
    750,559
    
    
    $
    708,345
    
    
    $
    680,934
 11




---



##### 



(b)
    Class B ShareOne 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 2004
    
    
    2003(Thousands)Beginning of yearAs previously reported
    
    $
    505,400
    
    
    $
    472,488Change in accounting policy for financial instruments [notes 2, 6]
    
    
    
    
    
    
    30,473As restated
    
    
    505,400
    
    
    
    502,961Stock-based compensation [note 17]
    
    
    7,206
    
    
    
    2,439Options exercised [note 17]
    
    
    (932
    )
    
    
    End of year
    
    $
    511,674
    
    
    $
    505,400
  10.
    Cumulative Translation AccountThe balance represents the cumulative unrealized net exchange loss on Camecos net investments
in foreign operations and on the foreign currency debt designated as hedges of the net
investments.11.
    Interest and Other (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Interest on long-term debt
    
    $
    40,014
    
    
    $
    38,901
    
    
    $
    31,715Redemption of preferred securities
    
    
    6,817
    
    
    
    
    
    
    
    Other interest and financing charges
    
    
    3,870
    
    
    
    2,221
    
    
    
    2,039Foreign exchange (gains) losses
    
    
    331
    
    
    
    3,620
    
    
    
    (1,648
    )Mark-to-market loss
    
    
    
    
    
    
    
    
    
    
    1,811Unrealized gains on derivatives
    
    
    (7,217
    )
    
    
    
    
    
    
    Interest income
    
    
    (4,819
    )
    
    
    (6,776
    )
    
    
    (6,842
    )Capitalized interest
    
    
    (24,732
    )
    
    
    (21,313
    )
    
    
    (19,463
    )Net
    
    $
    14,264
    
    
    $
    16,653
    
    
    $
    7,612
  As a result of the Kumtor pit wall failure in 2002, certain gold contracts designated as hedges
of Kumtors gold production were no longer effective. Mark-to-market losses on these contracts
have been expensed.12.
    Other Income (Expenses) 2004
    
    
    2003
    
    
    2002(Thousands)Restructuring of gold business
    
    $
    122,946
    
    
    $
    
    
    
    $
    South Texas Project break fee
    
    
    8,102
    
    
    
    
    
    
    
    Dividends on portfolio investments
    
    
    1,383
    
    
    
    1,923
    
    
    
    205Equity in earnings (loss) of associated companies
    
    
    990
    
    
    
    (1,494
    )
    
    
    (1,083
    )Net
    
    $
    133,421
    
    
    $
    429
    
    
    $
    (878
    )
 12




---



##### 



13.
    Income TaxesThe significant components of future income tax assets and liabilities at December 31 are as
follows: (Restated)2004
    
    
    2003(Thousands)AssetsProperty, plant and equipment
    
    $
    87,203
    
    
    $
    38,409Provision for reclamation
    
    
    49,903
    
    
    
    44,129Foreign exploration and development
    
    
    32,479
    
    
    
    37,566Other
    
    
    5,621
    
    
    
    743Future income tax assets before valuation allowance
    
    
    175,206
    
    
    
    120,847Valuation allowance
    
    
    (95,500
    )
    
    
    (67,499
    )Future income tax assets, net of valuation allowance
    
    $
    79,706
    
    
    $
    53,348LiabilitiesProperty, plant and equipment
    
    $
    568,275
    
    
    $
    551,481Inventories
    
    
    7,511
    
    
    
    5,060Long-term investments and other
    
    
    75,597
    
    
    
    49,294Future income tax liabilities
    
    $
    651,383
    
    
    $
    605,835Net future income tax liabilities
    
    $
    571,677
    
    
    $
    552,487Less current portion
    
    
    (38,653
    )
    
    
    (24,237
    )$
    533,024
    
    
    $
    528,250
  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: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Earnings before income taxes and minority interest
    
    $
    379,522
    
    
    $
    183,304
    
    
    $
    88,319Combined federal and provincial tax rate
    
    
    43.5
    %
    
    
    44.1
    %
    
    
    45.4
    %Computed income tax expense
    
    
    165,092
    
    
    
    80,837
    
    
    
    40,097Increase (decrease) in taxes resulting from:Change in tax legislation
    
    
    
    
    
    
    (81,300
    )
    
    
    Provincial royalties and other taxes
    
    
    5,541
    
    
    
    7,380
    
    
    
    8,883Federal resource allowance
    
    
    2,251
    
    
    
    (1,506
    )
    
    
    (5,918
    )Manufacturing and processing deduction
    
    
    (7,439
    )
    
    
    (8,443
    )
    
    
    (283
    )Difference between Canadian rate and rates
applicable to subsidiaries in other countries
    
    
    (61,398
    )
    
    
    (18,968
    )
    
    
    (7,379
    )Non-taxable portion of capital gain
    
    
    (28,448
    )
    
    
    
    
    
    
    Change in valuation allowance
    
    
    (11,185
    )
    
    
    
    
    
    
    Large corporations and other taxes
    
    
    5,780
    
    
    
    4,988
    
    
    
    4,521Other
    
    
    3,091
    
    
    
    (4,431
    )
    
    
    2,032Income tax expense (recovery)
    
    $
    73,285
    
    
    $
    (21,443
    )
    
    $
    41,953
 13




---



##### 



In 2003, the federal government introduced amendments to the Canadian Income
Tax Act which provided for a reduction in the corporate tax rate on income from resource
activities. The cumulative effect of the change in income tax legislation on Camecos future
income tax liability was a reduction of $86,200,000. In 2003, the Ontario government introduced amendments to the Corporations Tax Act which provided
for an increase in the corporate tax rate on all income. The cumulative effect of the change in
income tax legislation on Camecos future income tax liability was an increase of $4,900,000. (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Current income taxesCanada
    
    $
    15,310
    
    
    $
    6,984
    
    
    $
    7,895United States
    
    
    1,348
    
    
    
    
    
    
    
    Other
    
    
    6,393
    
    
    
    3,235
    
    
    
    2,374$
    23,051
    
    
    $
    10,219
    
    
    $
    10,269Future income taxes (recovery)Canada
    
    $
    57,329
    
    
    $
    (30,786
    )
    
    $
    32,501United States
    
    
    (5,107
    )
    
    
    
    
    
    
    Other
    
    
    (1,988
    )
    
    
    (876
    )
    
    
    (817
    )$
    50,234
    
    
    $
    (31,662
    )
    
    $
    31,684Net
    
    $
    73,285
    
    
    $
    (21,443
    )
    
    $
    41,953
 14. Statements of Cash Flows Other Operating Items (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Changes in non-cash working capital:Accounts receivable
    
    $
    4,660
    
    
    $
    8,329
    
    
    $
    27,601Inventories
    
    
    (51,913
    )
    
    
    (11,590
    )
    
    
    10,932Supplies and prepaid expenses
    
    
    (16,629
    )
    
    
    (3,649
    )
    
    
    (5,082
    )Accounts payable and accrued liabilities
    
    
    19,907
    
    
    
    31,989
    
    
    
    22,267Hedge position settlements
    
    
    3,634
    
    
    
    30,852
    
    
    
    14,794Reclamation payments
    
    
    (5,186
    )
    
    
    (9,903
    )
    
    
    (6,878
    )Other
    
    
    3,685
    
    
    
    (566
    )
    
    
    (3,142
    )Total
    
    $
    (41,842
    )
    
    $
    45,462
    
    
    $
    60,492
 15. Joint Ventures 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
    %
 14




---



##### 



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. The
majority of the uranium mining and development property, plant and equipment as disclosed in
note 4 are held in joint ventures. Prior to the acquisition of the remaining 66.67% interest in Kumtor Gold Company (KGC) [note
20], Camecos gold joint venture interest was comprised of a 33.33% interest in KGC. Cameco
proportionately consolidated its 33.33% interest in KGC. KGC obtains revenue directly from the
sale of products. Camecos share of the assets and liabilities, revenue and expenses and cash
flows relating to the Kumtor joint venture was as follows: 2003(Thousands)Current assets
    
    $
    27,795Property, plant and equipment
    
    
    61,771Total assets
    
    $
    89,566Current liabilities
    
    $
    7,458Long-term liabilities
    
    
    51,305Equity
    
    
    30,803Total liabilities and equity
    
    $
    89,566
 2003
    
    
    2002(Thousands)Revenues
    
    $
    109,287
    
    
    $
    82,361Expenses
    
    
    (99,863
    )
    
    
    (92,036
    )Net earnings (loss)
    
    $
    9,424
    
    
    $
    (9,675
    )
 Prior to the acquisition of the remaining interest in KGC [note 20], Camecos proportionate
share of earnings in 2004 was $17,222,000. Cash provided by (used in): 2003
    
    
    2002(Thousands)Operating activities
    
    $
    36,810
    
    
    $
    13,142Investing activities
    
    
    (4,112
    )
    
    
    (4,716
    )Financing activities
    
    
    (29,033
    )
    
    
    (16,013
    )Increase (decrease) in cash during the year
    
    $
    3,665
    
    
    $
    (7,587
    )
 15




---



##### 



16. Investment in Bruce Power L.P. (Bruce Power) (a) Investment On February 14, 2003, Cameco, TransCanada PipeLines Limited (TransCanada) and BPC Generation
Infrastructure Trust (BPC), amongst others, purchased a 79.8% interest in Bruce Power from
British Energy plc (British Energy). Upon closing, Cameco increased its ownership interest
in Bruce Power from 15% to 31.6%. TransCanada and BPC each hold, directly or indirectly, a
31.6% interest in Bruce Power with the Power Workers Union Trust holding a 4% interest and
the Society of Energy Professionals Trust holding a 1.2% interest. Cameco is using the
equity method to account for this investment. Camecos purchase price for the additional interest in Bruce Power was approximately
$204,466,000 including final closing adjustments. The purchase price was initially financed
with cash and debt. The purchase price of Camecos incremental 16.6% has been allocated as
follows: (Thousands)Net book value of assets acquired
    
    $
    149,056Excess of fair value over book value of property,
plant and equipment
    
    
    144,545Valuation of Bruce Power sales agreements
    
    
    (68,593
    )Pension liability
    
    
    (20,542
    )$
    204,466
 The amount allocated to the investment in Bruce Power includes an excess purchase price of
approximately $144,545,000 over Camecos incremental share of the book value of the
underlying net assets. This amount will be amortized to income based on the expected useful
life of the Bruce Power assets which extends to 2018. The valuation of Bruce Power sales
contracts will be amortized to income over the remaining term of the underlying sales
contracts, which extend to 2007. The approximate amount of pre-tax
income relating to the amortization of the fair value allocated to these contracts is as
follows: (Thousands)2003
    
    $
    20,0712004
    
    
    19,3412005
    
    
    13,1332006
    
    
    15,1922007
    
    
    856Total
    
    $
    68,593
 The amount allocated to the pension liability will be amortized to income over the 11 year
expected average remaining service life of Bruce Power employees, resulting in an annual
pre-tax amortization to income of $1,867,000. In addition, Cameco, TransCanada and BPC loaned Bruce Power funds to repay $225,000,000,
plus accrued interest, in deferred lease payments to Ontario Power Generation Inc. (OPG).
Camecos share was $75,000,000 plus accrued interest. This loan is due February 14, 2008
and bears interest at 10.5% per annum. Bruce Power 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. Cameco, TransCanada and BPC have assumed the obligations to provide financial guarantees on
behalf of the partnership. Cameco has provided the following financial assurances, with
varying terms that range from 2004 to 2018: 16




---



##### 



(i)
    Licensing assurances to Canadian Nuclear Safety Commission of $23,666,667.(ii)
    Guarantees to customers under power sale agreements of up to $121,000,000. At
December 31, 2004, Camecos actual exposure under these guarantees was $48,410,000.(iii)
    Termination payments to OPG pursuant to the lease agreement of $58,333,000. Under the 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 Bruce Power as licensed operator of
the Bruce facility. OPG is also responsible to manage radioactive waste associated with
decommissioning of the Bruce nuclear plants. Cameco, TransCanada, and BPC have assumed all obligations regarding Bruce Powers
post-retirement and post-employment benefit programs. The plans, which cover all of Bruce
Powers employees, include pension, group life insurance, health care and long-term
disability benefits. At December 31, 2004, the pension benefit plans accrued benefit
assets totaled $111,000,000 (2003 - $89,000,000). At December 31, 2004, the other unfunded
benefit plans accrued benefit liability totaled $254,000,000 (2003 - $219,000,000). (b) Fuel Supply Agreements Cameco has entered into fuel supply agreements with Bruce Power 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 2004, sales of uranium and conversion services to Bruce Power
amounted to $24,786,000 (2003 - $25,462,000), approximately 2.4% (2003 - 3.1%) of Camecos
total revenue. At December 31, 2004, amounts receivable under these agreements totaled
$20,887,000 (2003 - $30,193,000). (c) Supplementary Information  Bruce Power L.P. (100%) Balance Sheets (Millions)
    
    2004
    
    
    2003AssetsCurrent assets
    
    $
    390
    
    
    $
    316Property, plant and equipment
    
    
    2,233
    
    
    
    2,034Long-term receivables and investments
    
    
    172
    
    
    
    173$
    2,795
    
    
    $
    2,523Liabilities and Partners CapitalCurrent liabilities
    
    $
    246
    
    
    $
    329Long-term debt
    
    
    1,126
    
    
    
    1,1081,372
    
    
    
    1,437Partners capital
    
    
    1,423
    
    
    
    1,086$
    2,795
    
    
    $
    2,523
 17




---



##### 



Statements of Earnings (Millions)
    
    2004
    
    
    2003
    
    
    2002Revenue
    
    $
    1,583
    
    
    $
    1,208
    
    
    $
    919Operating costs
    
    
    1,178
    
    
    
    853
    
    
    
    750Earnings before interest and taxes
    
    
    405
    
    
    
    355
    
    
    
    169Interest
    
    
    67
    
    
    
    69
    
    
    
    63Earnings before taxes
    
    
    338
    
    
    
    286
    
    
    
    106Camecos share (i)
    
    
    107
    
    
    
    77
    
    
    
    16Adjustments (ii)
    
    
    14
    
    
    
    31
    
    
    
    Camecos share of earnings before taxes
    
    $
    121
    
    
    $
    108
    
    
    $
    16
  (i)
    Camecos interest in Bruce Power earnings prior to February 14, 2003 was 15%.
Subsequent to the acquisition of an additional 16.6% interest on February 14, 2003,
Camecos share is 31.6%.(ii)
    In addition to its proportionate share of earnings from Bruce Power, Cameco
records certain adjustments to account for any differences in accounting policy and to
amortize fair values assigned to assets and liabilities at the time of acquisition. Statements of Cash Flows (Millions)
    
    2004
    
    
    2003
    
    
    2002Cash provided by operations
    
    $
    439
    
    
    $
    387
    
    
    $
    185Cash used in investing
    
    
    (359
    )
    
    
    (528
    )
    
    
    (432
    )Cash (used in) provided by financing
    
    
    (98
    )
    
    
    131
    
    
    
    220
 17. Stock-Based Compensation Plans 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 Toronto
Stock Exchange 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. 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 9]. The aggregate number of common shares that may be issued pursuant to the Cameco stock option
plan shall not exceed 15,730,209, of which 8,069,637 shares have been issued. 18




---



##### 



Stock option transactions for the respective years were as follows: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Number of Shares)Beginning of year
    
    
    6,120,000
    
    
    
    6,671,250
    
    
    
    6,587,349Options granted
    
    
    2,085,000
    
    
    
    2,119,050
    
    
    
    1,467,150Options exercised [note 9]
    
    
    (2,731,800
    )
    
    
    (2,350,650
    )
    
    
    (943,299
    )Options cancelled
    
    
    (604,530
    )
    
    
    (319,650
    )
    
    
    (439,950
    )End of year
    
    
    4,868,670
    
    
    
    6,120,000
    
    
    
    6,671,250Exercisable
    
    
    1,626,900
    
    
    
    2,862,300
    
    
    
    3,994,650
 Upon exercise of certain existing options, additional options in respect of 148,950 shares
would be granted. Weighted average exercise prices were as follows: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002Beginning of year
    
    $
    13.41
    
    
    $
    12.99
    
    
    $
    12.45Options granted
    
    
    22.84
    
    
    
    12.86
    
    
    
    14.63Options exercised
    
    
    14.40
    
    
    
    10.88
    
    
    
    9.63Options cancelled
    
    
    26.33
    
    
    
    19.35
    
    
    
    17.44End of year
    
    $
    15.28
    
    
    $
    13.41
    
    
    $
    12.99Exercisable
    
    $
    12.53
    
    
    $
    14.60
    
    
    $
    13.80
 Total options outstanding and exercisable at December 31, 2004 were as follows: 2004
    
    
    
    
    
    Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageOption Price
    
    
    
    
    
    Remaining
    
    
    Exercisable
    
    
    
    
    
    
    ExercisablePer Share
    
    Number
    
    
    Life
    
    
    Price
    
    
    Number
    
    
    Price$5.00 - $11.67
    
    
    725,550
    
    
    
    4
    
    
    $
    8.81
    
    
    
    725,550
    
    
    $
    8.8111.68 - 18.33
    
    
    2,482,650
    
    
    
    6
    
    
    
    13.11
    
    
    
    785,250
    
    
    
    14.1618.34 - 25.17
    
    
    1,651,320
    
    
    
    7
    
    
    
    21.29
    
    
    
    116,100
    
    
    
    24.7425.18 - 33.23
    
    
    9,150
    
    
    
    10
    
    
    
    31.14
    
    
    
    
    
    
    
    4,868,670
    
    
    
    
    
    
    
    
    
    
    
    1,626,900
 The foregoing options have expiry dates ranging from February 14, 2005 to November 2, 2014. 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. 19




---



##### 



For the year ended December 31, 2004, Cameco has recorded compensation expense of $7,206,000
(2003- $2,439,000) with an offsetting credit to contributed surplus to reflect the estimated
fair value of stock options granted to employees in 2004. Since Camecos stock option awards vest over three years, the compensation expense included in
the determination of net income for 2004 is less than that which would have been recognized if
the fair value based method had been applied to all awards since the original effective date of
CICA Section 3870. Cameco has applied the pro forma disclosure provisions of the standard to awards granted on or
after January 1, 2002 but prior to January 1, 2003. The pro forma effect of awards granted
prior to January 1, 2002 has not been included. The pro forma net earnings, basic and diluted
earnings per share after giving effect to the grant of these options in 2002 are: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Net earnings  as reported
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Add: Stock option employee compensation expense
included in reported net earnings
    
    
    7,206
    
    
    
    2,439
    
    
    
    Deduct: Total stock option employee compensation
expense determined under fair value based
method for
all awards
    
    
    (7,810
    )
    
    
    (3,893
    )
    
    
    (2,261
    )Net earnings  pro forma
    
    $
    278,181
    
    
    $
    206,709
    
    
    $
    44,976Pro forma basic earnings per share
    
    $
    1.62
    
    
    $
    1.23
    
    
    $
    0.27Pro forma diluted earnings per share
    
    $
    1.55
    
    
    $
    1.21
    
    
    $
    0.27
 The fair value of the options issued was determined using the Black-Scholes option pricing model
with the following assumptions: 2004
    
    
    2003
    
    
    2002Number of options granted
    
    
    2,085,000
    
    
    
    2,119,050
    
    
    
    1,467,150Average strike price
    
    $
    22.84
    
    
    $
    12.87
    
    
    $
    14.61Expected dividend
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.17Expected volatility
    
    
    37
    %
    
    
    20
    %
    
    
    20
    %Risk-free interest rate
    
    
    3.3
    %
    
    
    4.1
    %
    
    
    5.0
    %Expected life of option
    
    4 years
    
    
    5 years
    
    
    5 yearsExpected forfeitures
    
    
    15
    %
    
    
    10
    %
    
    
    17
    %Weighted average grant date fair values
    
    $
    6.78
    
    
    $
    2.71
    
    
    $
    3.61
  Deferred Share Unit (DSU) and Other PlansCameco 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 2004, sixty percent of
each directors annual retainer was paid in DSUs. In addition, on an annual basis directors
can elect to receive the remaining forty percent 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 twenty
trading days prior to the redemption date multiplied by the number of DSUs held by the director.
As of December 31, 2004, the total DSUs held by participating directors was 125,033 (2003 -
101,484). 20




---



##### 



Cameco makes annual grants of bonuses to eligible non-North American employees in the form of
phantom stock options. Options under this plan are not physically granted; rather 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 Toronto
Stock Exchange 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, 2004, the number of options held by participating employees was
288,900 (2003 - 302,400) with exercise prices ranging from $9.61 to $21.03 per share (2003 -
$9.61 to $14.61) and a weighted average exercise price of $16.70 (2003 - $12.38).18.
    Pension and Other Post-Retirement BenefitsCameco 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 services are rendered. However, these future obligations are not
funded.The effective date for the most recent valuations on the plans is January 1, 2003. The next
planned effective date for valuation of the plans is set to be January 1, 2006. The status of
the defined plans is as follows:  (a)
    Accrued Benefit Obligation Pension Benefit Plans
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003(Thousands)
    
    
    (Thousands)Balance at beginning of year
    
    $
    15,380
    
    
    $
    14,595
    
    
    $
    3,389
    
    
    $
    4,092Current service cost
    
    
    806
    
    
    
    806
    
    
    
    186
    
    
    
    129Interest cost
    
    
    1,031
    
    
    
    984
    
    
    
    271
    
    
    
    206Actuarial gain
    
    
    
    
    
    
    (483
    )
    
    
    (26
    )
    
    
    (952
    )Plan amendments
    
    
    
    
    
    
    
    
    
    
    772
    
    
    
    Benefits paid
    
    
    (576
    )
    
    
    (522
    )
    
    
    (132
    )
    
    
    (86
    )Foreign exchange rate changes
    
    
    (163
    )
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    16,478
    
    
    $
    15,380
    
    
    $
    4,460
    
    
    $
    3,389
  (b)
    Plan Assets Pension Benefit Plans2004
    
    
    2003(Thousands)Fair value at beginning of year
    
    $
    21,758
    
    
    $
    10,684Actual return on plan assets
    
    
    885
    
    
    
    711Employer contributions
    
    
    1,134
    
    
    
    10,885Benefits paid
    
    
    (576
    )
    
    
    (522
    )Fair value at end of year
    
    $
    23,201
    
    
    $
    21,758
 21




---



##### 



Plan assets consist of: Pension Benefit Plans2004
    
    
    2003Asset Category (i)`Equity securities
    
    
    32
    %
    
    
    35
    %Bonds
    
    
    22
    %
    
    
    15
    %Cash
    
    
    0
    %
    
    
    2
    %Other (ii)
    
    
    46
    %
    
    
    48
    %Total
    
    
    100
    %
    
    
    100
    %
  (i)
    
    The defined benefit plan assets contain no material amounts of related party
assets at December 31, 2004 and 2003 respectively.(ii)
    
    Other 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
    
    
    Other Benefit Plans2004
    
    
    2003
    
    
    2004
    
    
    2003(Thousands)
    
    
    (Thousands)Fair value of plan assets
    
    $
    23,201
    
    
    $
    21,758
    
    
    $
    
    
    
    $
    Accrued benefit obligation
    
    
    16,478
    
    
    
    15,380
    
    
    
    4,460
    
    
    
    3,389Funded status of plans - surplus (deficit)
    
    
    6,723
    
    
    
    6,378
    
    
    
    (4,460
    )
    
    
    (3,389
    )Unamortized net actuarial loss
    
    
    1,740
    
    
    
    1,887
    
    
    
    
    
    
    
    Unamortized transitional obligation
    
    
    1,669
    
    
    
    2,365
    
    
    
    
    
    
    
    Accrued benefit asset (liability)
    
    $
    10,132
    
    
    $
    10,630
    
    
    $
    (4,460
    )
    
    $
    (3,389
    )Accrued Benefit Asset (Liability)RecognizedLong-term receivables, investments and
other [note 5]
    
    $
    10,132
    
    
    $
    10,630
    
    
    $
    
    
    
    $
    Other liabilities [note 8]
    
    
    
    
    
    
    
    
    
    
    (4,460
    )
    
    
    (3,389
    )Accrued benefit asset (liability)
    
    $
    10,132
    
    
    $
    10,630
    
    
    $
    (4,460
    )
    
    $
    (3,389
    )
 22




---



##### 



(d)
    Net Pension Expense 2004
    
    
    2003
    
    
    2002(Thousands)Current service cost
    
    $
    806
    
    
    $
    806
    
    
    $
    743Interest cost
    
    
    1,031
    
    
    
    984
    
    
    
    835Actual (return) loss on plan assets
    
    
    (885
    )
    
    
    (711
    )
    
    
    527Actuarial gains
    
    
    
    
    
    
    (483
    )
    
    
    Balance prior to adjustments to recognize the long term
nature of employee future benefit costs
    
    
    952
    
    
    
    596
    
    
    
    2,105Difference between expected and actuals return on plan
assets in the year
    
    
    60
    
    
    
    110
    
    
    
    (970
    )Difference between actuarial (gain) loss recognized for year and
actual actuarial (gain) loss on accrued benefit obligation for
year
    
    
    87
    
    
    
    672
    
    
    
    58Amortization of transitional obligation
    
    
    694
    
    
    
    694
    
    
    
    694Defined benefit pension expense
    
    
    1,793
    
    
    
    2,072
    
    
    
    1,887Defined contribution pension expense
    
    
    5,418
    
    
    
    4,857
    
    
    
    4,466Net pension expense
    
    $
    7,211
    
    
    $
    6,929
    
    
    $
    6,353
 2004
    
    
    2003
    
    
    2002Significant assumptions at December 31Discount rate
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    6.0
    %Rate of compensation increase
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.5
    %Long term rate of return on assets
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    8.0
    %
  (e)
    Other Post-Retirement Benefit Expense (Gain) 2004
    
    
    2003
    
    
    2002(Thousands)Current service cost
    
    $
    186
    
    
    $
    129
    
    
    $
    147Interest cost
    
    
    271
    
    
    
    206
    
    
    
    230Actuarial gains
    
    
    (26
    )
    
    
    (952
    )
    
    
    Plan amendment costs
    
    
    772
    
    
    
    
    
    
    
    Other post-retirement benefit expense (gain)
    
    $
    1,203
    
    
    $
    (617
    )
    
    $
    377
 2004
    
    
    2003
    
    
    2002Significant assumptions at December 31Discount rate
    
    
    6.5%
    
    
    
    6.5%
    
    
    
    7.5%Initial health care cost trend rate
    
    
    11%
    
    
    
    11%
    
    
    
    6%Cost trend rate declines to
    
    
    6%
    
    
    
    6%
    
    
    
    6%Year the rate reaches its final level
    
    
    2008
    
    
    
    2008
    
    
    
    
 23




---



##### 



(f)
    Pension and Other Post-Retirement Benefits Cash Payments 2004
    
    
    2003
    
    
    2002(Thousands)Employer contributions to funded pension plans
    
    $
    567
    
    
    $
    10,885
    
    
    $
    610Benefits paid for unfunded benefit plans
    
    
    132
    
    
    
    86
    
    
    
    94Cash contributions to defined contribution plans
    
    
    5,418
    
    
    
    4,857
    
    
    
    4,466Total cash payments for employee future benefits
    
    $
    6,117
    
    
    $
    15,828
    
    
    $
    5,170
  19.
    GoodwillThe acquisitions undertaken as part of the gold restructuring 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. The change in goodwill is due to the following: (Thousands)Balance, beginning of year
    
    $
    Acquired during the yearKGC [note 20]
    
    
    178,733AGR [note 20]
    
    
    35,573Change in foreign exchange rate
    
    
    (27,122
    )Balance, end of year
    
    $
    187,184
  20.
    Restructuring of the Gold Business  (a)
    Initial Public OfferingUnder its initial public offering, Centerra issued 5,000,000 common shares to the public on
June 30, 2004 for net proceeds of $73,625,000 after deducting the underwriters fees of 5%.
On July 28, 2004, the underwriters to the initial public offering of Centerra exercised
their over-allotment option to acquire an additional 1,875,000 shares for net proceeds of
$27,609,000.(b)
    Acquisition of 66.7% Interest in KGCPursuant to the restructuring agreement between Cameco Gold Inc. (a wholly owned subsidiary
of Cameco) and Kyrgyzaltyn, Centerra acquired an additional 66.7% interest in KGC, resulting
in KGC becoming a wholly owned subsidiary of Centerra. The purchase price consisted of
$11,000,000 (US) in cash, the contribution of a promissory note receivable and common shares
of Centerra. The acquisition was accounted for using the purchase method and the results of
operations are included, as to 100%, in the consolidated financial statements from June 22,
2004. Previously, Cameco Golds Inc.s 33.3% interest was accounted for by the proportionate
consolidation method. 24




---



##### 



The values assigned to the net assets acquired are as follows: (Restated)(Thousands)Cash and other working capital
    
    $
    58,700Property, plant and equipment
    
    
    192,071Goodwill [note 19]
    
    
    178,733Asset retirement obligation [note 7]
    
    
    (14,852
    )Subordinated debt
    
    
    (44,282
    )Future tax liability
    
    
    (12,756
    )Net assets acquired
    
    $
    357,614Financed by:Cash
    
    $
    15,158Note receivable from Kyrgyzaltyn
    
    
    5,155Settlement of shareholder subordinated loan
    
    
    60,622Common shares of Centerra
    
    
    276,679$
    357,614
  (c)
    AGR Limited  (i)
    Acquisition of 56.2% Interest in AGR LimitedOn March 5, 2002, Cameco acquired a 52.2% interest in AGR Limited (AGR). AGR is an
Australia-based exploration company whose principal asset is a 95.0% interest in the
Boroo gold deposit located in Mongolia. The purchase price was financed with
$12,000,000 (US) in cash and the contribution of a neighboring property. In exchange,
AGR issued 240,000,000 shares to Cameco. The acquisition was accounted for using the
purchase method and the results of operations are included in Camecos consolidated
financial statements from the effective date of the purchase.The values assigned to the net assets acquired are as follows: (Thousands)Cash and other working capital
    
    $
    13,845Property, plant and equipment
    
    
    27,054Minority interest
    
    
    (18,981
    )Net assets acquired
    
    $
    21,918Financed by:Cash
    
    $
    19,562Property, at carrying value
    
    
    2,356$
    21,918
  Subsequent to the acquisition, Cameco provided an additional $3,000,000 (US) for further
exploration in the area in exchange for an incremental 4% interest in AGR (43,000,000
shares), increasing its total interest to 56.2% at December 31, 2002. Upon restructure,
the 56.2% interest was transferred to Centerra. 25




---



##### 



(ii)
    Acquisition of 43.8% Interest in AGR LimitedEffective June 30, 2004, Centerra acquired an additional 43.7% interest in AGR,
resulting in Centerras interest in AGR rising to 99.9%. The purchase price was
satisfied through the issuance of Centerra common shares. The acquisition was accounted
for as a step purchase and the results of operations are included as it was already a
consolidated subsidiary. Subsequent to June 30, 2004, Centerra acquired the remaining
0.1% ownership interests in AGR, making it a wholly owned subsidiary of Centerra.The values assigned to the net assets acquired are as follows: (Restated)(Thousands)Reduction of minority interest
    
    $
    18,915Mark-to-market loss on hedge contracts
    
    
    (7,946
    )Property, plant and equipment
    
    
    32,253Goodwill [note 19]
    
    
    35,573Future tax asset
    
    
    (1,971
    )Net assets acquired
    
    $
    76,824Financed by:Common shares of Centerra
    
    $
    76,637Cash
    
    
    187$
    76,824
  (d)
    Exchange of KGC Subordinated DebtEffective June 30, 2004, Centerra exchanged common shares and cash in exchange for the
subordinated debt of KGC. (Restated)(Thousands)Fair value of exchange amount:Common shares issued
    
    $
    47,449Cash
    
    
    18,97566,424Net book value of subordinated debt acquired
    
    
    (53,906
    )Loss on exchange of debt
    
    $
    12,518
  (e)
    Dilution GainThe transactions noted above resulted in Camecos interest in Centerra being diluted. As a
result of this dilution, Cameco recorded a pre-tax gain of $139,000,000.  21.
    Commitments and Contingencies  (a)
    An action was commenced in the Court of Queens Bench for Saskatchewan on December 4,
1996 against Cameco Corporation, Cameco Gold Inc., Kumtor Operating Company, Kumtor
Mountain Corporation et al by the estates and certain dependants of the nine individuals
killed in the helicopter accident that occurred in Kyrgyzstan on October 4, 1995. The
plaintiffs are seeking damages of $20,700,000. The defendants are defending this action.On February 3, 2005, the lawsuit was settled and there was no financial impact on Cameco. 26




---



##### 



(b)
    A jury action was commenced by Oren Benton on November 28, 2000 in the State of
Colorado, USA, against Cameco. The action claims in excess of $200,000,000 (US) for breach
of contract, breach of duty of good faith and fair dealing, and tortious interference with
contractual relations and/or business expectations. Camecos motion to dismiss the claim
was granted by Senior Judge Daniel B. Sparr by order filed November 15, 2002 and Mr.
Bentons claim was dismissed. Mr. Benton has unsuccessfully appealed this decision and is
now seeking leave to appeal to the Supreme Court of the United States.Management is of the opinion, after review of the facts with counsel, that the claim is
completely without merit and that the outcome of this action will not have a material
financial impact on Camecos financial position, results of operations or liquidity.(c)
    Camecos wholly owned subsidiary, Power Resources Inc. (PRI), and two unrelated third
parties have been sued in the United States District Court for the District of Wyoming by
Mountain West Mines Inc. (MWM). MWM claims that PRI and the other defendants owe it
royalties on uranium mined in the Powder River Basin of Wyoming (which encompasses the
Highland and Smith Ranch operations). PRIs exposure consists of unpaid royalties plus
interest, and a continuing royalty on uranium from its operations within the Powder River
Basin of approximately four percent of the selling price. MWM has submitted an expert
report claiming that the amount of unpaid royalties is $6,690,755 (US) for the period 1993
through 2003 and the amount of interest thereon is $4,153,607 (US) as of January 7, 2005. A
scheduling order has been issued that will see this dispute go to non-jury trial on June
20, 2005. The pre-trial discovery process continues and some depositions have been
completed.Management is of the opinion, after review of the facts with counsel, that PRI will prevail
and, therefore, this action will not have a material impact on Camecos financial position,
results of operations and liquidity.(d)
    CommitmentsAt December 31, 2004, Camecos purchase commitments, the majority of which are fixed price
uranium and conversion purchase arrangements, were as follows: (Millions (US))2005
    
    $
    1322006
    
    
    1132007
    
    
    1232008
    
    
    1112009
    
    
    91Thereafter
    
    
    332Total
    
    $
    902
  22.
    Financial InstrumentsThe 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 gold and US dollars. Net realized
gains (losses) on contracts designated as hedges are recorded as deferred revenues (deferred
charges) and recognized in earnings when the related hedged transactions occur. During 2004,
all gold instruments were closed. 27




---



##### 



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.CurrencyAt December 31, 2004, Cameco had hedged $747,800,000 (US) at an average exchange rate of $1.30
designated to various dates through 2009 as follows: (Thousands)2005
    
    $
    347,8002006
    
    
    185,0002007
    
    
    130,0002008
    
    
    85,0002009
    
    
    Total
    
    $
    747,800
  These hedge positions consist entirely of spot-deferred forward contracts. The average exchange
rate reflects contract prices as at December 31, 2004 to their initial maturity date which is
earlier than the designation date in many cases. The realized exchange rate will depend on the
forward premium (discount) that is earned (paid) as hedge contracts are extended to their final
designation date.At December 31, 2004, Camecos net mark-to-market gain on these foreign currency
instruments was $68,478,000 (Cdn). 28




---



##### 



23.
    Per Share AmountsPer 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 2004 was 171,444,861 (2003 -
168,358,671; 2002 - 167,342,934). (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Basic earnings per share computationNet earnings
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Weighted average common shares outstanding
    
    
    171,445
    
    
    
    168,359
    
    
    
    167,343Basic earnings per common share
    
    $
    1.63
    
    
    $
    1.24
    
    
    $
    0.28Diluted earnings per share computationNet earnings
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Dilutive effect of:Convertible debentures
    
    
    8,055
    
    
    
    2,290
    
    
    
    Net earnings, assuming dilution
    
    $
    286,840
    
    
    $
    210,453
    
    
    $
    47,237Weighted average common shares outstanding
    
    
    171,445
    
    
    
    168,359
    
    
    
    167,343Dilutive effect of:Convertible debentures
    
    
    10,615
    
    
    
    2,850
    
    
    
    Stock options
    
    
    2,169
    
    
    
    1,947
    
    
    
    105Weighted average common shares
outstanding,
assuming dilution
    
    
    184,229
    
    
    
    173,156
    
    
    
    167,448Diluted earnings per common share
    
    $
    1.56
    
    
    $
    1.22
    
    
    $
    0.28
  Options whose exercise price was greater than the average market price were excluded from this
calculation. In 2004, there were no options whose exercise price was greater than the average
market price.24.
    Segmented InformationCameco has four reportable segments: uranium, conversion, power and gold. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The conversion segment involves the refining and conversion of uranium concentrate and the purchase and sale of conversion services. The power 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. 29




---



##### 



(a) Business Segments 2004(i)
    
    
    
    
    
    
    
    
    
    
    (i)(Millions)
    
    Uranium
    
    
    Conversion
    
    
    Power
    
    
    Gold
    
    
    Subtotal
    
    
    Adjustments
    
    
    TotalRevenue
    
    $
    581.5
    
    
    $
    144.5
    
    
    $
    519.9
    
    
    $
    322.5
    
    
    $
    1,568.4
    
    
    $
    (519.9
    )
    
    $
    1,048.5ExpensesProducts and services sold
    
    
    377.9
    
    
    
    101.9
    
    
    
    320.0
    
    
    
    143.3
    
    
    
    943.1
    
    
    
    (320.0
    )
    
    
    623.1Depreciation, depletion and
reclamation
    
    
    99.5
    
    
    
    9.6
    
    
    
    67.8
    
    
    
    71.1
    
    
    
    248.0
    
    
    
    (67.8
    )
    
    
    180.2Exploration
    
    
    17.0
    
    
    
    
    
    
    
    
    
    
    
    19.0
    
    
    
    36.0
    
    
    
    
    
    
    
    36.0Research and development
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    1.9Other
    
    
    (1.8
    )
    
    
    
    
    
    
    11.4
    
    
    
    (123.5
    )
    
    
    (113.9
    )
    
    
    (11.4
    )
    
    
    (125.3
    )Gain on sale of assets
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (2.0
    )
    
    
    
    
    
    
    (2.0
    )Earnings from Bruce Power
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120.7
    )
    
    
    (120.7
    )Non-segmented expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75.7Earnings before income taxes and
minority interest
    
    
    90.6
    
    
    
    31.1
    
    
    
    120.7
    
    
    
    212.9
    
    
    
    455.3
    
    
    
    
    
    
    
    379.6Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.3Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.5Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    278.8Assets
    
    $
    2,455.0
    
    
    $
    206.4
    
    
    $
    1,079.6
    
    
    $
    742.1
    
    
    $
    4,483.1
    
    
    $
    (431.0
    )
    
    $
    4,052.1Capital expenditures for the year
    
    $
    122.5
    
    
    $
    14.0
    
    
    $
    114.3
    
    
    $
    11.8
    
    
    $
    262.6
    
    
    $
    (114.3
    )
    
    $
    148.3
 2003(Restated)(i)
    
    
    
    
    
    
    
    
    
    
    (i)(Millions)
    
    Uranium
    
    
    Conversion
    
    
    Power
    
    
    Gold
    
    
    Subtotal
    
    
    Adjustments
    
    
    TotalRevenue
    
    $
    570.3
    
    
    $
    142.4
    
    
    $
    371.9
    
    
    $
    114.2
    
    
    $
    1,198.8
    
    
    $
    (371.9
    )
    
    $
    826.9ExpensesProducts and services sold
    
    
    394.2
    
    
    
    91.8
    
    
    
    228.2
    
    
    
    52.2
    
    
    
    766.4
    
    
    
    (228.2
    )
    
    
    538.2Depreciation, depletion and
reclamation
    
    
    93.5
    
    
    
    10.9
    
    
    
    34.6
    
    
    
    21.5
    
    
    
    160.5
    
    
    
    (34.6
    )
    
    
    125.9Exploration
    
    
    13.2
    
    
    
    
    
    
    
    
    
    
    
    8.7
    
    
    
    21.9
    
    
    
    
    
    
    
    21.9Research and development
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7Other
    
    
    (0.4
    )
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    0.8
    
    
    
    (1.2
    )
    
    
    (0.4
    )Earnings from Bruce Power
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107.9
    )
    
    
    (107.9
    )Non-segmented expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64.1Earnings before income taxes and
minority interest
    
    
    69.8
    
    
    
    38.0
    
    
    
    107.9
    
    
    
    31.8
    
    
    
    247.5
    
    
    
    
    
    
    
    183.4Income tax recovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.4
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.4
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    208.2Assets
    
    $
    2,365.6
    
    
    $
    180.0
    
    
    $
    992.3
    
    
    $
    347.4
    
    
    $
    3,885.3
    
    
    $
    (454.1
    )
    
    $
    3,431.2Capital expenditures for the year
    
    $
    72.5
    
    
    $
    6.0
    
    
    $
    156.5
    
    
    $
    88.3
    
    
    $
    323.3
    
    
    $
    (156.5
    )
    
    $
    166.8
 30




---



##### 



2002(Restated)(i)
    
    
    
    
    
    
    
    
    
    
    (i)(Millions)
    
    Uranium
    
    
    Conversion
    
    
    Power
    
    
    Gold
    
    
    Subtotal
    
    
    Adjustments
    
    
    TotalRevenue
    
    $
    523.7
    
    
    $
    137.4
    
    
    $
    137.8
    
    
    $
    87.2
    
    
    $
    886.1
    
    
    $
    (137.8
    )
    
    $
    748.3ExpensesProducts and services sold
    
    
    345.1
    
    
    
    82.7
    
    
    
    100.7
    
    
    
    58.3
    
    
    
    586.8
    
    
    
    (100.7
    )
    
    
    486.1Depreciation, depletion and
reclamation
    
    
    87.0
    
    
    
    11.1
    
    
    
    13.8
    
    
    
    20.2
    
    
    
    132.1
    
    
    
    (13.8
    )
    
    
    118.3Exploration
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    9.7
    
    
    
    21.5
    
    
    
    
    
    
    
    21.5Research and development
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    2.3Other
    
    
    (0.2
    )
    

    
    
    
    
    
    7.5
    
    
    
    1.8
    
    
    
    9.1
    
    
    
    (7.5
    )
    
    
    1.6Gain on sale of assets
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.7
    )
    
    
    
    
    
    
    (2.7
    )Earnings from Bruce Power
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.8
    )
    
    
    (15.8
    )Non-segmented expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48.7Earnings before income taxes and
minority interest
    
    
    82.7
    

    
    
    41.3
    
    
    
    15.8
    
    
    
    (2.8
    )
    
    
    137.0
    
    
    
    
    
    
    
    88.3Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.0Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    47.2Assets
    
    $
    2,365.4
    
    
    $
    177.5
    
    
    $
    321.6
    
    
    $
    349.2
    
    
    $
    3,213.7
    
    
    $
    (190.4
    )
    
    $
    3,023.3Capital expenditures for the year
    
    $
    62.0
    
    
    $
    6.9
    
    
    $
    64.8
    
    
    $
    29.0
    
    
    $
    162.7
    
    
    $
    (64.8
    )
    
    $
    97.9
  (i)
    
    Consistent with the presentation of financial information for internal management
purposes, Camecos pro rata share of Bruce Powers financial results have been presented as
a separate segment. In accordance with GAAP, this investment is accounted for by the
equity method of accounting in these consolidated financial statements and the associated
revenues and expenses are eliminated in the adjustments column.  (b)
    Geographic Segments (Restated)
    
    
    (Restated)(Millions)
    
    2004
    
    
    2003
    
    
    2002Revenue from products and
servicesCanada  domestic
    
    $
    77.4
    
    
    $
    40.2
    
    
    $
    62.8 export
    
    
    244.0
    
    
    
    337.5
    
    
    
    381.6United States
    
    
    404.6
    
    
    
    335.0
    
    
    
    216.7Kyrgyzstan
    
    
    207.8
    
    
    
    114.2
    
    
    
    87.2Mongolia
    
    
    114.7
    
    
    
    
    
    
    
    $
    1,048.5
    
    
    $
    826.9
    
    
    $
    748.3AssetsCanada
    
    $
    3,089.2
    
    
    $
    2,882.4
    
    
    $
    2,521.8United States
    
    
    246.3
    
    
    
    233.1
    
    
    
    189.4Kyrgyzstan
    
    
    494.5
    
    
    
    163.7
    
    
    
    221.6Mongolia
    
    
    193.3
    
    
    
    130.0
    
    
    
    69.0Kazakhstan
    
    
    28.8
    
    
    
    22.0
    
    
    
    21.5$
    4,052.1
    
    
    $
    3,431.2
    
    
    $
    3,023.3
 31




---



##### 



(c)
    Major CustomersCameco relies on a small number of customers to purchase a significant portion of its
uranium concentrates and uranium conversion services. During 2004, revenues from one
customer of Camecos uranium and conversion segments represented approximately $86,500,000
(12%) of Camecos total revenues. In 2003, revenues from one customer of Camecos uranium
and conversion segments represented approximately $97,000,000 (14%) of Camecos total
revenues. In 2002, revenues from one customer of Camecos uranium and conversion segments
represented approximately $92,000,000 (14%) of total revenue. As customers are relatively
few in number, accounts receivable from any individual customer may periodically exceed 10%
of accounts receivable depending on delivery schedules.  25.
    Related Party TransactionsThe company purchases a significant amount of goods and services for its Saskatchewan mining
operations from northern Saskatchewan suppliers to support economic development in the region.
One such supplier is Kitsaki Management Limited Partnership (Kitsaki). Harry Cook, a director
of Cameco, was the chair of the company and was also the chief of the Lac La Ronge Indian Band,
which owns Kitsaki. In 2004, Cameco has paid Kitsaki subsidiary companies $23,100,000 (2003 -
$18,800,000) for transportation and catering services. The transactions were conducted in the
normal course of business and were accounted for at the exchange amount. Accounts payable
include a balance of $800,000 (2003 - nil) resulting from these transactions.26.
    Generally Accepted Accounting Principles in Canada and the United StatesThe 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: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Net earnings under Canadian GAAP
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    47,237Adjustment to reverse Canadian GAAP restatement (vi)
    
    
    
    
    
    
    
    
    
    
    2,597Net earnings applicable to US GAAP
    
    $
    278,785
    
    
    $
    208,163
    
    
    $
    49,834Add (deduct) adjustments for (d):Depreciation and depletion (i)
    
    
    1,618
    
    
    
    2,579
    
    
    
    2,579Mineral property costs (ii)
    
    
    11,028
    
    
    
    (7,218
    )
    
    
    (7,355
    )Pre-operating costs (iii)
    
    
    3,658
    
    
    
    1,512
    
    
    
    (866
    )Hedges and derivative instruments (iv)
    
    
    (12,104
    )
    
    
    12,304
    
    
    
    1,928Realization of cumulative translation account (v)
    
    
    
    
    
    
    
    
    
    
    (1,585
    )Earnings from Bruce Power (iii)
    
    
    2,015
    
    
    
    (13,938
    )
    
    
    (12,481
    )Income tax effect of adjustments
    
    
    (1,808
    )
    
    
    2,034
    
    
    
    7,651Net earnings before cumulative effect of a change in
accounting policy
    
    
    283,192
    
    
    
    205,436
    
    
    
    39,705Cumulative effect of a change in accounting policy (vi)
    
    
    
    
    
    
    10,683
    
    
    
    Net earnings under US GAAP
    
    
    283,192
    
    
    
    216,119
    
    
    
    39,705Hedges and derivative instruments (iv)
    
    
    32,691
    
    
    
    29,508
    
    
    
    (6,203
    )Foreign currency translation adjustments (v)
    
    
    (27,266
    )
    
    
    (32,309
    )
    
    
    859Unrealized gain (loss) on available-for-sale securities (vii)
    
    
    36,849
    
    
    
    21,410
    
    
    
    (334
    )Comprehensive income under US GAAP
    
    $
    325,466
    
    
    $
    234,728
    
    
    $
    34,027Basic net earnings per share under US GAAP
    
    $
    1.65
    
    
    $
    1.28
    
    
    $
    0.24Diluted earnings per share under US GAAP
    
    $
    1.58
    
    
    $
    1.26
    
    
    $
    0.24
 32




---



##### 



(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 2004
    
    
    (Restated) 2003Canadian
    
    
    US
    
    
    Canadian
    
    
    USGAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAP(Thousands)Current assets
    
    $
    851,240
    
    
    $
    851,240
    
    
    $
    686,087
    
    
    $
    680,151Property, plant and equipment
    
    
    2,281,418
    
    
    
    2,197,594
    
    
    
    2,119,784
    
    
    
    2,038,234Long-term receivables, investments and
other
    
    
    732,262
    
    
    
    832,924
    
    
    
    625,317
    
    
    
    624,219Goodwill
    
    
    187,184
    
    
    
    187,184
    
    
    
    
    
    
    
    Total assets
    
    $
    4,052,104
    
    
    $
    4,068,942
    
    
    $
    3,431,188
    
    
    $
    3,342,604Current liabilities
    
    $
    296,319
    
    
    $
    296,319
    
    
    $
    205,648
    
    
    $
    205,648Long-term debt
    
    
    518,603
    
    
    
    518,603
    
    
    
    601,048
    
    
    
    601,048Provision for reclamation
    
    
    166,941
    
    
    
    166,941
    
    
    
    150,444
    
    
    
    150,444Other liabilities
    
    
    31,086
    
    
    
    31,086
    
    
    
    36,196
    
    
    
    36,196Deferred income taxes
    
    
    533,024
    
    
    
    522,114
    
    
    
    528,250
    
    
    
    485,8651,545,973
    
    
    
    1,535,063
    
    
    
    1,521,586
    
    
    
    1,479,201Minority interest
    
    
    345,611
    
    
    
    345,611
    
    
    
    14,690
    
    
    
    14,690Shareholders equityShare capital
    
    
    750,559
    
    
    
    750,559
    
    
    
    708,345
    
    
    
    708,345Contributed surplus
    
    
    511,674
    
    
    
    511,674
    
    
    
    505,400
    
    
    
    505,400Retained earnings
    
    
    938,809
    
    
    
    850,880
    
    
    
    694,423
    
    
    
    602,087Accumulated other comprehensive income- cumulative translation account (v)
    
    
    (40,522
    )
    
    
    (19,300
    )
    
    
    (13,256
    )
    
    
    7,966- available-for-sale securities (vii)
    
    
    
    
    
    
    60,713
    
    
    
    
    
    
    
    23,864- hedges and derivative instruments (iv)
    
    
    
    
    
    
    33,742
    
    
    
    
    
    
    
    1,0512,160,520
    
    
    
    2,188,268
    
    
    
    1,894,912
    
    
    
    1,848,713Total liabilities and shareholders
equity
    
    $
    4,052,104
    
    
    $
    4,068,942
    
    
    $
    3,431,188
    
    
    $
    3,342,604(ii) Components of accounts payable and accrued liabilities are as follows:Accounts payable
    
    $
    137,901
    
    
    $
    137,901
    
    
    $
    120,436
    
    
    $
    120,436Taxes and royalties payable
    
    
    55,258
    
    
    
    55,258
    
    
    
    21,464
    
    
    
    21,464Accrued liabilities
    
    
    38,538
    
    
    
    38,538
    
    
    
    25,102
    
    
    
    25,102Total accounts payable and
accrued liabilities
    
    $
    231,697
    
    
    $
    231,697
    
    
    $
    167,002
    
    
    $
    167,002
 33




---



##### 



(c)
    The effects of these adjustments would result in the consolidated statements of cash
flows reporting the following under US GAAP: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Cash provided by operations
    
    $
    239,070
    
    
    $
    242,538
    
    
    $
    233,533Cash used in investing
    
    $
    (171,715
    )
    
    $
    (455,988
    )
    
    $
    (79,348
    )Cash provided by (used in)
financing
    
    $
    54,014
    
    
    $
    251,321
    
    
    $
    (130,211
    )
  (d)
    A description of certain significant differences between Canadian GAAP and US GAAP
follows:  (i)
    Writedown of Mineral PropertiesUnder 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 CostsConsistent 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. In addition, since the carrying value of the mineral
property is different under US GAAP, interest capitalization is impacted. Accordingly,
an adjustment has been made to reduce capitalized interest by
$1,614,000 (2003 - nil).Prior to 2004, the mineral property costs expensed under US GAAP included a provision
for loan impairment totaling $12,642,000. Due to the recognition of reserves and the
completion of a final feasibility study in 2004, Cameco was able to demonstrate the
loan to be recoverable and has reversed the impairment provision.(iii)
    Pre-Operating CostsUnder 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. After such time, those costs are amortized over the estimated life
of the project. 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.During 2004, $1,048,000
(2003 - $17,917,000) of costs related to the restart of two
nuclear reactors at Bruce Power were considered to be start-up costs required to be
expensed under US GAAP. As a result of expensing these start-up costs, there is a
difference in the capital costs recognized under Canadian and US GAAP. Accordingly,
an adjustment has been made to reduce the amount of depreciation charged to earnings
by $2,445,000 (2003 - nil).(iv)
    Hedges and Derivative InstrumentsUnder US GAAP, all derivative instruments are recognized on the balance sheet as
either an asset or a liability 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. 34




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##### 



For amounts included in the balance sheet as accumulated other comprehensive income as
at December 31, 2004, a gain of $36,465,000 (after tax) relates to the hedging of
foreign exchange risk. Of these amounts, $18,909,000 (after tax) would be recorded in
earnings during 2005 if market conditions remained unchanged. The impact on other
comprehensive income for 2004 is a gain of $38,814,000 (2003  gain of $26,107,000).
During 2004, no net gains or losses from the hedging of net investments were realized.During 2003, $12,304,000 was excluded from the assessment of hedge effectiveness. For
amounts included in the balance sheet as accumulated other comprehensive income as at
December 31, 2003, a gain of $250,000 (after tax) relates to the hedging of interest
rate risk, a loss of $18,971,000 (after tax) relates to the hedging of gold price
risk, and a gain of $38,625,000 (after tax) relates to the hedging of foreign exchange
rate risk. During 2004, no net gains or losses from the hedging of net investments
were realized.Bruce Power 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, 2004, a loss of $2,410,000 (after tax) relates to the hedging of
electricity price risk, and a loss of $313,000 (after tax) relates to the hedging of
foreign exchange risk. Of these amounts, $914,000 (after tax) would be recorded in
earnings for 2005 if market conditions remained unchanged. The impact on other
comprehensive income for hedge accounting for 2004 is a loss of $6,123,000 (2003 
gain of $3,401,000).Prior to August 2003, $3,979,000 of gains related to Bruce Power 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.(v)
    Realization of Cumulative Translation AccountUnder Canadian GAAP, a proportionate amount of the cumulative translation account is
recognized in earnings when a portion of the net investment in a subsidiary is
realized. US GAAP does not allow for any of the cumulative translation account to be
taken to earnings unless a portion of the investment has been sold or substantially
liquidated.(vi)
    Cumulative Effect of a Change in Accounting PolicyIn 2001, the FASB issued Statement 143, Accounting for Asset Retirement Obligations,
which addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs.
The standard applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and use of the
asset. Statement 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value is added to the
carrying amount of the associated asset. The liability is accreted at the end of each
period through charges to operating expenses.For Canadian GAAP, the cumulative effect of the change in policy on the balance sheet
at December 31, 2002 is to increase property, plant and equipment by $23,000,000,
future income taxes by $8,000,000, liabilities by $4,000,000 and opening retained
earnings by $11,000,000. Under US GAAP no restatement is required. 35




---



##### 



(vii)
    Available-for-Sale SecuritiesUnder 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. 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. are classified as available-for-sale. 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, 2004 is $79,785,000 (2003 - $41,428,000). The cumulative
unrealized gain at December 31, 2004 is $60,713,000 (2003 -
$23,864,000).  (e)
    Stock-Based CompensationStatement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement defines a fair value based method of accounting
for employee stock options. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, which is similar to the method applied under Canadian GAAP
and followed by Cameco prior to 2003. For periods prior to adoption, companies that continue
to follow the intrinsic value based method must disclose pro-forma earnings and earnings per
share information under the fair value method.Cameco adopted the fair value method of accounting for employee stock options with
retroactive effect to January 1, 2003. Pursuant to new transitional rules related to
accounting for stock-based compensation under Canadian and US GAAP, Cameco chose to record
compensation expense for all employee stock options granted on or after January 1, 2003 with
a corresponding increase to contributed surplus. Compensation expense for options granted
during 2003 and beyond is determined based on the estimated fair values at the time of
grant, the cost of which is recognized over the vesting periods of the respective options.Cameco has applied the pro forma disclosure provisions of the standard to awards granted
prior to January 1, 2003. The pro forma net earnings, basic and diluted earnings per share
after giving effect to the grant of these options are: (Restated)
    
    
    (Restated)2004
    
    
    2003
    
    
    2002(Thousands)Net earnings for the year in accordance
with US GAAP as calculated above
    
    $
    283,192
    
    
    $
    216,119
    
    
    $
    39,705Effect of recording compensation
expense under stock options plans
    
    
    (604
    )
    
    
    (2,027
    )
    
    
    (3,991
    )Pro-forma net earnings after
application of SFAS 123
    
    $
    282,588
    
    
    $
    214,092
    
    
    $
    35,714Pro-forma basic net earnings per common
share after application of SFAS 123
    
    $
    1.65
    
    
    $
    1.27
    
    
    $
    0.21Pro-forma diluted net earnings per
common share after application of SFAS 123
    
    $
    1.58
    
    
    $
    1.25
    
    
    $
    0.21
 36




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##### 



In calculating the foregoing pro-forma amounts, the fair value of each option grant was
estimated as of the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: 2002
    
    
    2001
    
    
    2000Dividend
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.17Expected volatility
    
    
    20.0%
    
    
    
    39.6%
    
    
    
    44.8%Risk-free interest rate
    
    
    5.0%
    
    
    
    5.5%
    
    
    
    6.0%Expected life of option
    
    5 years
    
    8 years
    
    8 yearsExpected forfeitures
    
    
    17.0%
    
    
    
    20.0%
    
    
    
    20.0%Weighted average grant date fair
values
    
    $
    3.61
    
    
    $
    4.54
    
    
    $
    3.23
  (f)
    New Accounting PronouncementsIn 2004, the FASB issued Statement 151, Inventory Costs, which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted materials
(spoilage). This statement requires that these items be recognized as current-period
charges. Cameco will adopt this standard on a prospective basis beginning January 1, 2005
and does not expect it will have a material impact on its consolidated financial statements.In 2004, FASB issued revised FAS 123 Share-Based Payment. This amended statement
eliminates the alternative to use Accounting Principles Board (APB) Opinion No. 25s
intrinsic value method of accounting, as was provided in the originally issued Statement
123. This Statement also clarifies and expands Statement 123s guidance in several areas,
including measuring fair value, classifying an award as equity or as a liability, and
attributing compensation cost to reporting periods. As a result, public entities are
required to use the grant-date fair value of the award in measuring the cost of employee
services received in exchange for an equity award of equity instruments. Compensation cost
is required to be recognized over the requisite service period. Compensation cost is not
recognized for equity instruments for which employees do not render the requisite service.
For liability awards, entities are required to re-measure the fair value of the award at
each reporting date up until the settlement date. Changes in fair value of liability awards
during the requisite service period are required to be recognized as compensation cost over
the vesting period. This amended statement is effective the beginning of the first interim
or annual reporting period that begins after June 15, 2005. Cameco will adopt this standard
on a prospective basis and does not expect it will have a material impact on its
consolidated statements.In 2004, the FASB issued Statement 153, Exchanges of Nonmonetary Assets, which amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange.
Cameco will adopt this standard on a prospective basis beginning January 1, 2005 and does
not expect it will have a material impact on its consolidated financial statements.  27.
    Comparative FiguresCertain prior year balances have been reclassified to conform to the current financial statement
presentation. 37




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##### 



Summary of Significant Accounting Policies The consolidated financial statements are prepared by management in accordance with Canadian
generally accepted accounting principles and, except as described in note 26, conform in all
material respects with accounting principles generally accepted in the United States. 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. 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. 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. Inventories
Inventories of broken ore, uranium concentrates and refined and converted products 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. Supplies
Consumable supplies and spares are valued at the lower of cost or replacement value. 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. 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. 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. 38




---



##### 



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. 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. 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. 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. 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. Other assets are depreciated according to the straight-line method based on estimated useful
lives, which generally range from three to 10 years. Research and Development and Exploration Costs
Expenditures for applied research and technology related to the products and processes of Cameco
and expenditures for geological exploration programs are charged against earnings as incurred. 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 or capitalized and depreciated depending on their relationship to future
earnings. 39




---



##### 



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 prorated 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. On defined benefit pension plans, past service costs arising from plan amendments
and net actuarial gains, and 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 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. Cameco measures the plan assets and the
accrued benefit obligation on December 31 each year. Stock-Based Compensation Cameco has three stock-based compensation plans that are described in note 17. These encompass
a stock option 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 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 and phantom stock options are amortized over their vesting periods and
remeasured at each reporting period, until settlement, using the quoted market value. Revenue Recognition
Cameco supplies uranium concentrates and uranium conversion services to utility customers.
Third party fabricators process Camecos products into fuel for use in nuclear reactors. Cameco records revenue on the sale of its nuclear products to utility customers when title to
the product transfers and delivery is effected through book transfer. Since nuclear products
must be stored at licensed storage facilities, Cameco may hold customer owned product at its
premises prior to shipment of the product to third parties for further processing. Cameco records revenue on the sale of gold when title passes and delivery is affected. 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. 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. 40




---



##### 



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 revenue 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. 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. 41