##### 



EXHIBIT 99.2




---



##### 



Exhibit 99.2
 
 Report of Managements Accountability
    
    
    2Auditors Report
    
    
    2Consolidated Balance Sheets
    
    
    3Consolidated Statements of Earnings
    
    
    4Consolidated Statements of Retained Earnings
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    61. Cameco Corporation
    
    
    62. Accounting Policies
    
    
    63. Inventories
    
    
    74. Property, Plant and Equipment
    
    
    85. Long-Term Receivables, Investments and Other
    
    
    86. Long-Term Debt
    
    
    97. Provision for Reclamation
    
    
    108. Other Liabilities
    
    
    109. Share Capital
    
    
    1110. Cumulative Translation Account
    
    
    1211. Interest and Other
    
    
    1212. Other Income (Expense)
    
    
    1213. Income Taxes
    
    
    1214. Statements of Cash Flows
    
    
    1315. Joint Ventures
    
    
    1416. Investment in BPLP
    
    
    1417. Stock-Based Compensation Plans
    
    
    1518. Pension and Other Post-Retirement Benefits
    
    
    1719. Goodwill
    
    
    2120. Restructuring of the Gold Business
    
    
    2121. Commitments and Contingencies
    
    
    2322. Financial Instruments
    
    
    2423. Per Share Amounts
    
    
    2524. Segmented Information
    
    
    2625. Generally Accepted Accounting Principles
in Canada and the United States
    
    
    2826. Subsequent Events
    
    
    3227. Comparative Figures
    
    
    32Summary of Significant Accounting Policies
    
    
    33
  1




---



##### 



Report of Managements Accountability
      Original signed by O. Kim Goheen
 Senior Vice-President and Chief Financial Officer
  Auditors Report
 To the Shareholders of Cameco Corporation
    Original signed by KPMG LLP
 Chartered Accountants
 Saskatoon, Canada
   2




---



##### 



Consolidated Balance Sheets
 As at December 31
    
    2005
    
    
    2004($Cdn thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    623,193
    
    
    $
    189,532Accounts receivable
    
    
    340,498
    
    
    
    182,951Inventories [note 3]
    
    
    399,675
    
    
    
    386,936Supplies and prepaid expenses
    
    
    152,790
    
    
    
    90,923Current portion of long-term receivables, investments and other [note 5]
    
    
    8,303
    
    
    
    8981,524,459
    
    
    
    851,240Property, plant and equipment [note 4]
    
    
    2,871,337
    
    
    
    2,281,418Long-term receivables, investments and other [note 5]
    
    
    196,747
    
    
    
    732,262Goodwill [note 19]
    
    
    180,232
    
    
    
    187,184Total assets
    
    $
    4,772,775
    
    
    $
    4,052,104Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    350,399
    
    
    $
    231,697Dividends payable
    
    
    10,487
    
    
    
    8,652Current portion of long-term debt [note 6]
    
    
    156,699
    
    
    
    Current portion of other liabilities [note 8]
    
    
    17,553
    
    
    
    17,317Future income taxes [note 13]
    
    
    73,910
    
    
    
    38,653609,048
    
    
    
    296,319Long-term debt [note 6]
    
    
    702,109
    
    
    
    518,603Provision for reclamation [note 7]
    
    
    167,568
    
    
    
    166,941Other liabilities [note 8]
    
    
    124,780
    
    
    
    31,086Future income taxes [note 13]
    
    
    444,942
    
    
    
    533,0242,048,447
    
    
    
    1,545,973Minority interest
    
    
    360,697
    
    
    
    345,611Shareholders equityShare capital [note 9]
    
    
    779,035
    
    
    
    750,559Contributed surplus [note 9]
    
    
    523,300
    
    
    
    511,674Retained earnings
    
    
    1,114,693
    
    
    
    938,809Cumulative translation account [note 10]
    
    
    (53,397
    )
    
    
    (40,522
    )2,363,631
    
    
    
    2,160,520Total liabilities and shareholders equity
    
    $
    4,772,775
    
    
    $
    4,052,104
   Approved by the board of directors
 Original signed by Gerald W. Grandey and Nancy E. Hopkins
  3




---



##### 



Consolidated Statements of Earnings
 For the years ended December 31
    
    2005
    
    
    2004
    
    
    2003($Cdn thousands, except per share amounts)Revenue fromProducts and services
    
    $
    1,312,655
    
    
    $
    1,048,487
    
    
    $
    826,946ExpensesProducts and services sold
    
    
    814,032
    
    
    
    623,125
    
    
    
    538,233Depreciation, depletion and reclamation
    
    
    197,516
    
    
    
    180,229
    
    
    
    125,866Administration
    
    
    108,025
    
    
    
    69,565
    
    
    
    47,610Exploration
    
    
    57,468
    
    
    
    35,972
    
    
    
    21,913Interest and other [note 11]
    
    
    12,103
    
    
    
    14,264
    
    
    
    16,653Research and development
    
    
    2,410
    
    
    
    1,911
    
    
    
    1,717Gain on sale of assets
    
    
    (1,739
    )
    
    
    (1,958
    )
    
    
    1,189,815
    
    
    
    923,108
    
    
    
    751,992Earnings from operations
    
    
    122,840
    
    
    
    125,379
    
    
    
    74,954Earnings from Bruce Power [note 16]
    
    
    165,775
    
    
    
    120,722
    
    
    
    107,921Other income (expense) [note 12]
    
    
    (13,989
    )
    
    
    133,421
    
    
    
    429Earnings before income taxes and minority interest
    
    
    274,626
    
    
    
    379,522
    
    
    
    183,304Income tax expense (recovery) [note 13]
    
    
    30,257
    
    
    
    73,285
    
    
    
    (21,443
    )Minority interest
    
    
    26,738
    
    
    
    27,452
    
    
    
    (3,416
    )Net earnings
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Basic earnings per common share [notes 9, 23]
    
    $
    0.63
    
    
    $
    0.81
    
    
    $
    0.62Diluted earnings per common share [notes 9, 23]
    
    $
    0.60
    
    
    $
    0.78
    
    
    $
    0.61
 Consolidated Statements of Retained Earnings
 For the years ended December 31
    
    2005
    
    2004
    
    2003($Cdn thousands)Retained earnings at beginning of year
    
    $
    938,809
    
    
    $
    694,423
    
    
    $
    519,910Net earnings
    
    
    217,631
    
    
    
    278,785
    
    
    
    208,163Dividends on common shares
    
    
    (41,747
    )
    
    
    (34,399
    )
    
    
    (33,650
    )Retained earnings at end of year
    
    $
    1,114,693
    
    
    $
    938,809
    
    
    $
    694,423
   4




---



##### 



Consolidated Statements of Cash Flows
 For the years ended December 31
    
    2005
    
    
    2004
    
    
    2003($Cdn thousands)Operating activitiesNet earnings
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Items not requiring (providing) cash:Depreciation, depletion and reclamation
    
    
    197,516
    
    
    
    180,229
    
    
    
    125,866Provision for future taxes [note 13]
    
    
    (51,723
    )
    
    
    31,058
    
    
    
    (31,662
    )Deferred charges (revenue) recognized
    
    
    (44,963
    )
    
    
    (19,085
    )
    
    
    9,331Unrealized gains on derivatives
    
    
    10,513
    
    
    
    (7,217
    )
    
    
    Stock-based compensation [note 17]
    
    
    14,751
    
    
    
    7,206
    
    
    
    2,439Gain on sale of assets
    
    
    (1,739
    )
    
    
    (1,958
    )
    
    
    Earnings from Bruce Power
    
    
    (165,775
    )
    
    
    (120,722
    )
    
    
    (107,921
    )Equity in (earnings) loss from associated companies [note 12]
    
    
    (184
    )
    
    
    (990
    )
    
    
    1,494Other income
    
    
    16,577
    
    
    
    (124,050
    )
    
    
    Minority interest
    
    
    26,738
    
    
    
    27,452
    
    
    
    (3,416
    )Other operating items [note 14]
    
    
    58,194
    
    
    
    (22,666
    )
    
    
    45,462Cash provided by operations
    
    
    277,536
    
    
    
    228,042
    
    
    
    249,756Investing activitiesAcquisition of net business assets, net of cash acquired
    
    
    
    
    
    
    (3,717
    )
    
    
    Additions to property, plant and equipment
    
    
    (284,929
    )
    
    
    (148,273
    )
    
    
    (166,840
    )Restructuring of Bruce Power
    
    
    200,000
    
    
    
    
    
    
    
    Net proceeds on sale of investment in
Energy Resources of Australia Ltd
    
    
    101,956
    
    
    
    
    
    
    
    Increase in long-term receivables, investments and other
    
    
    (6,077
    )
    
    
    (10,466
    )
    
    
    (296,608
    )Proceeds on sale of property, plant and equipment
    
    
    10,532
    
    
    
    1,769
    
    
    
    242Cash provided by (used in) investing
    
    
    21,482
    
    
    
    (160,687
    )
    
    
    (463,206
    )Financing activitiesShort-term financing
    
    
    (14,544
    )
    
    
    14,544
    
    
    
    Decrease in debt
    
    
    (167,233
    )
    
    
    (169,083
    )
    
    
    (25,848
    )Increase in debt
    
    
    
    
    
    
    100,300
    
    
    
    59,001Issue of debentures, net of issue costs
    
    
    297,750
    
    
    
    
    
    
    
    Issue of convertible debentures, net of issue costs
    
    
    
    
    
    
    
    
    
    
    223,032Issue of shares
    
    
    25,199
    
    
    
    41,281
    
    
    
    27,411Subsidiary issue of shares
    
    
    
    
    
    
    101,234
    
    
    
    Dividends
    
    
    (39,970
    )
    
    
    (34,262
    )
    
    
    (32,275
    )Cash provided by financing
    
    
    101,202
    
    
    
    54,014
    
    
    
    251,321Increase in cash during the year
    
    
    400,220
    
    
    
    121,369
    
    
    
    37,871Exchange rate changes on foreign currency cash balances
    
    
    (9,662
    )
    
    
    (15,906
    )
    
    
    (11,898
    )Increase in cash due to accounting change [note 16]
    
    
    43,103
    
    
    
    
    
    
    
    Cash at beginning of year
    
    
    189,532
    
    
    
    84,069
    
    
    
    58,096Cash at end of year
    
    $
    623,193
    
    
    $
    189,532
    
    
    $
    84,069Supplemental cash flow disclosureInterest paid
    
    $
    26,610
    
    
    $
    35,968
    
    
    $
    31,026Income taxes paid
    
    $
    48,429
    
    
    $
    18,262
    
    
    $
    11,537
   5




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##### 



Notes to Consolidated Financial Statements
 For the years ended December 31, 2005, 2004 and 2003($Cdn thousands except per share amounts and as noted)
 1.
    
    Cameco CorporationCameco 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 a 31.6% interest in Bruce Power L.P.
(BPLP), which operates
the four Bruce B nuclear reactors 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 PoliciesA summary of significant accounting policies follows the notes to the consolidated financial
statements.(b)
    
    New Accounting Pronouncements
 (i)
    
    In January 2005, the CICA issued four new accounting standards: Handbook Section 1530,
Comprehensive
Income, Handbook Section 3251, Equity, Handbook Section 3855, Financial Instruments  Recognition
and
Measurement and Handbook Section 3865, Hedges.These standards are effective for interim and annual
financial statements for Camecos fiscal years beginning January 1, 2007. The impact of implementing
these
new standards is not yet determinable as it is dependent on Camecos outstanding positions, hedging
strategies and market volatility.Comprehensive incomeIn January 2005, the CICA issued new standards for the reporting and display of comprehensive
income.Unrealized gains and losses on financial assets that will be held as available for sale, unrealized
foreign
currency translation amounts arising from self-sustaining foreign operations, and changes in the
fair value
of cash flow hedging instruments, will be recorded in the Consolidated Statement of Other
Comprehensive
Income until recognized in the Consolidated Statement of Earnings.Other comprehensive income will
form
part of shareholders equity.EquityIn January 2005, the CICA issued revised standards requiring an enterprise to present a separate
component
of equity for each category of equity that is of a different
nature.
Financial instrumentsDisclosure and presentationIn April 2005, the CICA issued revised standards addressing the presentation and disclosure of
financial
instruments and non-financial derivatives.Recognition and measurementIn January 2005, the CICA issued new standards for the recognition and measurement of financial
instruments. Under the new standard, all financial instruments will be classified as one of the
following:
held to maturity, loans and receivables, held for trading or available for sale. Financial assets
and liabilities
held for trading will be measured at fair value with gains and losses recognized in net earnings.
Financial
assets held to maturity, loans and receivables and financial liabilities other than those held for
trading, will
be measured at amortized cost. Available-for-sale instruments will be measured at fair value with
gains and losses recognized in other comprehensive income. The standard permits re-designation of any
financial
instrument as held for trading.
  6




---



##### 



Hedges 
In January 2005, the CICA issued new standards which specify the circumstances under which hedge
accounting is permissible and how hedge accounting may be performed.Fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation are
permissible
under the new section. In a fair value hedging relationship, the carrying value of the hedged item
is adjusted
by gains or losses attributable to the hedged risk and recorded in net earnings. This change in fair
value of
the hedged item, to the extent that the hedging relationship is effective, is offset by changes in
the fair value
of the derivative. In a cash flow hedging relationship, the effective portion of the change in fair
value of the
hedging derivative will be recognized in other comprehensive income. The ineffective portion will be
recognized in net earnings. The amounts recognized in accumulated other comprehensive income will be
reclassified to net earnings in the periods in which earnings are affected by the variability in
the cash flows
of the hedged item.(ii)
    
    Non-monetary transactionsIn June 2005, the CICA issued Handbook Section 3831, which provides revised standards on
non-monetary
transactions requiring that all non-monetary transactions be measured at fair value unless certain
criteria
are met.These standards are effective for all non-monetary transactions initiated after January 1, 2006.
Cameco
does not anticipate that the adoption of this standard will have a material impact on its
consolidated
financial statements.
 3. Inventories
 2005
    
    
    2004UraniumConcentrate
    
    $
    292,099
    
    
    $
    312,042Broken ore
    
    
    9,661
    
    
    
    12,123301,760
    
    
    
    324,165Conversion
    
    
    63,492
    
    
    
    36,098GoldFinished
    
    
    14,311
    
    
    
    12,651Broken ore
    
    
    20,112
    
    
    
    14,02234,423
    
    
    
    26,673Total
    
    $
    399,675
    
    
    $
    386,936
  7




---



##### 



4. Property, Plant and Equipment
 AccumulatedDepreciation
    
    2005
    
    2004Cost
    
    and Depletion
    
    Net
    
    NetUraniumMining
    
    $
    2,712,013
    
    
    $
    1,382,042
    
    
    $
    1,329,971
    
    
    $
    1,352,529Non-producing
    
    
    577,181
    
    
    
    
    
    
    
    577,181
    
    
    
    446,753Conversion
    
    
    290,006
    
    
    
    158,349
    
    
    
    131,657
    
    
    
    134,669PowerAssets under capital lease
    
    
    164,300
    
    
    
    43,100
    
    
    
    121,200
    
    
    
    Other
    
    
    481,205
    
    
    
    81,960
    
    
    
    399,245
    
    
    
    GoldMining
    
    
    828,165
    
    
    
    550,680
    
    
    
    277,485
    
    
    
    321,201Non-producing
    
    
    2,877
    
    
    
    
    
    
    
    2,877
    
    
    
    2,970Other
    
    
    51,095
    
    
    
    19,374
    
    
    
    31,721
    
    
    
    23,296Total
    
    $
    5,106,842
    
    
    $
    2,235,505
    
    
    $
    2,871,337
    
    
    $
    2,281,418
 5. Long-Term Receivables, Investments and Other
 2005
    
    
    2004BPLP [note 16]Interest in BPLP
    
    $
    
    
    
    $
    569,013Loan receivable
    
    
    
    
    
    
    75,195Capital lease receivable from Bruce A L.P.
    
    
    97,454
    
    
    
    Receivable from Ontario Power Generation (OPG)
    
    
    19,181
    
    
    
    Accrued pension benefit asset [note 18]
    
    
    18,119
    
    
    
    Kumtor Gold Company (KGC)Reclamation trust fund
    
    
    5,087
    
    
    
    4,893Investments in associated companiesInvestment in Technology Commercialization International, Inc.
    
    
    
    
    
    
    2,647Investment in UEX Corporation (market $166,530)
    
    
    11,303
    
    
    
    8,339Portfolio investmentsEnergy Resources of Australia Ltd
    
    
    
    
    
    
    18,208General Hydrogen Corporation
    
    
    
    
    
    
    6,323Deferred chargesDebt issue costs
    
    
    8,538
    
    
    
    6,934Gold hedges
    
    
    3,291
    
    
    
    9,894Investment in Huron Wind L.P.
    
    
    2,527
    
    
    
    2,616Advances receivable
    
    
    21,928
    
    
    
    15,104Accrued pension benefit asset [note 18]
    
    
    9,689
    
    
    
    10,132Other
    
    
    7,933
    
    
    
    3,862205,050
    
    
    
    733,160Less current portion
    
    
    (8,303
    )
    
    
    (898
    )Net
    
    $
    196,747
    
    
    $
    732,262
    8




---



##### 



6. Long-Term Debt
 2005
    
    
    2004Convertible debentures
    
    $
    204,577
    
    
    $
    202,370Debentures
    
    
    450,000
    
    
    
    150,000Capital lease obligation  BPLP [note 16]
    
    
    204,231
    
    
    
    Commercial paper
    
    
    
    
    
    
    166,233858,808
    
    
    
    518,603Less current portion
    
    
    (156,699
    )
    
    
    Net
    
    $
    702,109
    
    
    $
    518,603
         2006
    
    $
    156,6992007
    
    
    7,8902008
    
    
    8,8302009
    
    
    10,1702010
    
    
    11,613Thereafter
    
    
    663,606Total
    
    $
    858,808
  9




---



##### 



7. Provision for Reclamation
    2005
    
    
    2004
    
    
    2003Balance, beginning of year
    
    $
    166,941
    
    
    $
    150,444
    
    
    $
    159,344Acquisition of Kumtor interest [note 20]
    
    
    
    
    
    
    14,852
    
    
    
    Additions to liabilities
    
    
    579
    
    
    
    2,074
    
    
    
    Liabilities settled
    
    
    (6,938
    )
    
    
    (4,357
    )
    
    
    (13,214
    )Accretion expense
    
    
    9,017
    
    
    
    9,246
    
    
    
    8,757Impact of foreign exchange
    
    
    (2,031
    )
    
    
    (5,318
    )
    
    
    (4,443
    )Balance, end of year
    
    $
    167,568
    
    
    $
    166,941
    
    
    $
    150,444
  (i)
    
    Total undiscounted amount of the estimated cash flows  $239,000,000.(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; 8.0% for operations in Kyrgyzstan;
8.5% for operations
in Mongolia.
  2005
    
    
    2004Uranium
    
    $
    101,573
    
    
    $
    96,803Conversion
    
    
    44,923
    
    
    
    47,090Gold
    
    
    21,072
    
    
    
    23,048Total
    
    $
    167,568
    
    
    $
    166,941
  8. Other Liabilities
 2005
    
    
    2004Deferred
revenue  currency hedges
    
    $
    26,171
    
    
    $
    22,975Short-term financing
    
    
    
    
    
    
    14,544Accrued post-retirement benefit liability [note 18]
    
    
    7,403
    
    
    
    4,460BPLPAccrued post-retirement benefit liability [note 18]
    
    
    78,149
    
    
    
    Deferred
revenue  electricity contracts
    
    
    16,047
    
    
    
    Other
    
    
    14,563
    
    
    
    6,424142,333
    
    
    
    48,403Less current portion
    
    
    (17,553
    )
    
    
    (17,317
    )Net
    
    $
    124,780
    
    
    $
    31,086
  10




---



##### 



9.
    
    Share Capital
 On January 31, 2006, the board of directors of Cameco approved a split of the companys
outstanding common
shares on a two-for-one basis. The stock split was effected in the form of a stock dividend of one
additional common
share for each share owned by shareholders of record at the close of business on February 17,
2006.The companys
common shares commenced trading on a split basis on February 15, 2006 on the Toronto Stock Exchange
(TSX)
and February 23, 2006 on the New York Stock Exchange. 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
$1.25 (2004  $1.63; 2003  $1.24).
 Authorized share capital:
     (a)
    
    Common Shares
 Number Issued
    
    2005
    
    
    2004
    
    
    2003(Number of Shares)Beginning of year
    
    
    346,080,138
    
    
    
    340,616,538
    
    
    
    335,915,238Issued:Debenture conversions
    
    
    16,150
    
    
    
    
    
    
    
    Stock option plan [note 17]
    
    
    3,473,760
    
    
    
    5,463,600
    
    
    
    4,701,300Issued share capital
    
    
    349,570,048
    
    
    
    346,080,138
    
    
    
    340,616,538
 Amount
    
    2005
    
    
    2004
    
    
    2003Beginning of year
    
    $
    751,145
    
    
    $
    711,063
    
    
    $
    685,491Issued:Debenture conversions
    
    
    175
    
    
    
    
    
    
    
    Stock option plan [note 17]
    
    
    28,100
    
    
    
    40,082
    
    
    
    25,572Issued share capital
    
    
    779,420
    
    
    
    751,145
    
    
    
    711,063Less loans receivable [note 17]
    
    
    (385
    )
    
    
    (586
    )
    
    
    (2,718
    )End of year
    
    $
    779,035
    
    
    $
    750,559
    
    
    $
    708,345
 (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
 2005
    
    
    2004Beginning of year
    
    $
    511,674
    
    
    $
    505,400Stock-based compensation [note 17]
    
    
    14,751
    
    
    
    7,206Options exercised [note 17]
    
    
    (3,102
    )
    
    
    (932
    )Debenture conversions
    
    
    (23
    )
    
    
    End of year
    
    $
    523,300
    
    
    $
    511,674
  11




---



##### 



10.
    
    Cumulative Translation AccountThe balance represents the cumulative unrealized net exchange loss on Camecos net investments
in foreign
operations and any foreign currency debt designated as hedges of the net investments.11.
    
    Interest and Other
 2005
    
    
    2004
    
    
    2003Interest on long-term debt
    
    $
    35,388
    
    
    $
    40,014
    
    
    $
    38,901Redemption of preferred securities
    
    
    
    
    
    
    6,817
    
    
    
    Other interest and financing charges
    
    
    1,600
    
    
    
    3,870
    
    
    
    2,221Foreign exchange losses
    
    
    3,719
    
    
    
    331
    
    
    
    3,620(Gains) losses on derivatives
    
    
    7,754
    
    
    
    (7,217
    )
    
    
    Interest income
    
    
    (10,517
    )
    
    
    (4,819
    )
    
    
    (6,776
    )Capitalized interest
    
    
    (25,841
    )
    
    
    (24,732
    )
    
    
    (21,313
    )Net
    
    $
    12,103
    
    
    $
    14,264
    
    
    $
    16,653
 12.
    
    Other Income (Expense)
 2005
    
    
    2004
    
    
    2003Restructuring of gold business
    
    $
    
    
    
    $
    122,946
    
    
    $
    Restructuring of Bruce Power
    
    
    (93,545
    )
    
    
    
    
    
    
    Sale of investment in Energy Resources of Australia Ltd
    
    
    83,673
    
    
    
    
    
    
    
    South Texas Project break fee
    
    
    
    
    
    
    8,102
    
    
    
    Dividends on portfolio investments
    
    
    2,022
    
    
    
    1,383
    
    
    
    1,923Writedown of portfolio investments
    
    
    (6,323
    )
    
    
    
    
    
    
    Equity in earnings (loss) of associated companies
    
    
    184
    
    
    
    990
    
    
    
    (1,494
    )Net
    
    $
    (13,989
    )
    
    $
    133,421
    
    
    $
    429
 13.
    
    Income TaxesThe significant components of future income tax assets and liabilities at December 31 are as
follows:
 2005
    
    
    2004AssetsProperty, plant and equipment
    
    $
    129,823
    
    
    $
    87,203Provision for reclamation
    
    
    53,901
    
    
    
    49,903Foreign exploration and development
    
    
    33,618
    
    
    
    32,479Other
    
    
    53,691
    
    
    
    5,621Future income tax assets before valuation allowance
    
    
    271,033
    
    
    
    175,206Valuation allowance
    
    
    (112,519
    )
    
    
    (95,500
    )Future income tax assets, net of valuation allowance
    
    $
    158,514
    
    
    $
    79,706LiabilitiesProperty, plant and equipment
    
    $
    571,585
    
    
    $
    568,275Inventories
    
    
    12,100
    
    
    
    7,511Long-term investments and other
    
    
    93,681
    
    
    
    75,597Future income tax liabilities
    
    $
    677,366
    
    
    $
    651,383Net future income tax liabilities
    
    $
    518,852
    
    
    $
    571,677Less current portion
    
    
    (73,910
    )
    
    
    (38,653
    )$
    444,942
    
    
    $
    533,024
  12




---



##### 



2005
    
    
    2004
    
    
    2003Earnings before income taxes and minority interest
    
    $
    274,626
    
    
    $
    379,522
    
    
    $
    183,304Combined federal and provincial tax rate
    
    
    42.4
    %
    
    
    43.5
    %
    
    
    44.1
    %Computed income tax expense
    
    
    116,441
    
    
    
    165,092
    
    
    
    80,837Increase (decrease) in taxes resulting from:Change in tax legislation
    
    
    
    
    
    
    
    
    
    
    (81,300
    )Provincial royalties and other taxes
    
    
    3,079
    
    
    
    5,541
    
    
    
    7,380Federal resource allowance
    
    
    (8,181
    )
    
    
    2,251
    
    
    
    (1,506
    )Manufacturing and processing deduction
    
    
    (1,321
    )
    
    
    (7,439
    )
    
    
    (8,443
    )Difference between Canadian rate and rates
applicable to subsidiaries in other countries
    
    
    (91,049
    )
    
    
    (61,398
    )
    
    
    (18,968
    )Non-taxable portion of capital gain
    
    
    (10,300
    )
    
    
    (28,448
    )
    
    
    Change in valuation allowance
    
    
    17,019
    
    
    
    (11,185
    )
    
    
    Large corporations and other taxes
    
    
    8,602
    
    
    
    5,780
    
    
    
    4,988Stock-based compensation plans
    
    
    6,121
    
    
    
    3,128
    
    
    
    1,076Recovery of taxes due to amendment of tax treatment
    
    
    (10,342
    )
    
    
    
    
    
    
    Other
    
    
    188
    
    
    
    (37
    )
    
    
    (5,507
    )Income tax expense (recovery)
    
    $
    30,257
    
    
    $
    73,285
    
    
    $
    (21,443
    )
   2005
    
    
    2004
    
    
    2003Current income taxesCanada
    
    $
    53,719
    
    
    $
    34,486
    
    
    $
    6,984United States
    
    
    583
    
    
    
    1,348
    
    
    
    Other
    
    
    27,678
    
    
    
    6,393
    
    
    
    3,235$
    81,980
    
    
    $
    42,227
    
    
    $
    10,219Future income taxes (recovery)Canada
    
    $
    (56,923
    )
    
    $
    38,153
    
    
    $
    (30,786
    )United States
    
    
    2,538
    
    
    
    (5,107
    )
    
    
    Other
    
    
    2,662
    
    
    
    (1,988
    )
    
    
    (876
    )$
    (51,723
    )
    
    $
    31,058
    
    
    $
    (31,662
    )Net
    
    $
    30,257
    
    
    $
    73,285
    
    
    $
    (21,443
    )
 14. Statements of Cash Flows
 Other Operating Items
 2005
    
    
    2004
    
    
    2003Changes in non-cash working capital:Accounts receivable
    
    $
    (78,552
    )
    
    $
    4,660
    
    
    $
    8,329Inventories
    
    
    (21,079
    )
    
    
    (51,913
    )
    
    
    (11,590
    )Supplies and prepaid expenses
    
    
    (22,282
    )
    
    
    (16,629
    )
    
    
    (3,649
    )Accounts payable and accrued liabilities
    
    
    44,381
    
    
    
    39,083
    
    
    
    31,989Hedge position settlements
    
    
    63,248
    
    
    
    3,634
    
    
    
    30,852Reclamation payments
    
    
    (6,535
    )
    
    
    (5,186
    )
    
    
    (9,903
    )Bruce Power distributions
    
    
    83,740
    
    
    
    
    
    
    
    Other
    
    
    (4,727
    )
    
    
    3,685
    
    
    
    (566
    )Total
    
    $
    58,194
    
    
    $
    (22,666
    )
    
    $
    45,462
  13




---



##### 



15. Joint Ventures
  Producing:McArthur River
    
    
    69.81
    %Key Lake
    
    
    83.33
    %Non-producing:Cigar Lake
    
    
    50.03
    %Inkai
    
    
    60.00
    %
   16. Investment in BPLP
 (a) Restructuring
  (b) Fuel Supply Agreements
  (c) Supplementary Information
  Balance Sheets
 (Millions)
    
    2005
    
    
    2004Current assets
    
    $
    133
    
    
    $
    123Property, plant and equipment
    
    
    415
    
    
    
    706Long-term receivables and investments
    
    
    144
    
    
    
    54$
    692
    
    
    $
    883Current liabilities
    
    $
    98
    
    
    $
    77Long-term liabilities
    
    
    354
    
    
    
    356452
    
    
    
    433Equity
    
    
    240
    
    
    
    450$
    692
    
    
    $
    883
  14




---



##### 



Statements of Earnings
 (Millions)
    
    2005
    
    
    2004
    
    
    2003Revenue
    
    $
    565
    
    
    $
    494
    
    
    $
    351Operating costs
    
    
    380
    
    
    
    366
    
    
    
    252Earnings before interest and taxes
    
    
    185
    
    
    
    128
    
    
    
    99Interest
    
    
    21
    
    
    
    21
    
    
    
    22Loss on restructuring
    
    
    47
    
    
    
    
    
    
    
    Earnings before taxes
    
    $
    117
    
    
    $
    107
    
    
    $
    77
 Statements of Cash Flows
 (Millions)
    
    2005
    
    
    2004
    
    
    2003Cash provided by operations
    
    $
    244
    
    
    $
    140
    
    
    $
    122Cash provided by (used in) investing
    
    
    103
    
    
    
    (114
    )
    
    
    (167
    )Cash (used in) provided by financing
    
    
    (328
    )
    
    
    (33
    )
    
    
    41
 17. Stock-Based Compensation Plans
 Stock Option Plan
     (Number of Options)
    
    2005
    
    
    2004
    
    
    2003Beginning of year
    
    
    9,737,340
    
    
    
    12,240,000
    
    
    
    13,342,500Options granted
    
    
    2,631,180
    
    
    
    4,170,000
    
    
    
    4,238,100Options exercised [note 9]
    
    
    (3,473,760
    )
    
    
    (5,463,600
    )
    
    
    (4,701,300
    )Options cancelled
    
    
    (171,590
    )
    
    
    (1,209,060
    )
    
    
    (639,300
    )End of year
    
    
    8,723,170
    
    
    
    9,737,340
    
    
    
    12,240,000Exercisable
    
    
    2,859,318
    
    
    
    3,253,800
    
    
    
    5,724,600
   2005
    
    
    2004
    
    
    2003Beginning of year
    
    $
    7.64
    
    
    $
    6.71
    
    
    $
    6.50Options granted
    
    
    27.11
    
    
    
    11.42
    
    
    
    6.43Options exercised
    
    
    7.16
    
    
    
    7.20
    
    
    
    5.44Options cancelled
    
    
    28.79
    
    
    
    13.17
    
    
    
    9.68End of year
    
    $
    13.29
    
    
    $
    7.64
    
    
    $
    6.71Exercisable
    
    $
    6.93
    
    
    $
    6.27
    
    
    $
    7.30
  15




---



##### 



2005
    
    Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageOption Price
    
    
    
    
    
    Remaining
    
    Exercisable
    
    
    
    
    
    ExercisablePer Share
    
    Number
    
    Life
    
    Price
    
    Number
    
    Price$  3.13
-   5.84
    
    
    720,000
    
    
    
    3
    
    
    $
    4.40
    
    
    
    720,000
    
    
    $
    4.405.85
-   9.17
    
    
    2,945,800
    
    
    
    5
    
    
    
    6.42
    
    
    
    1,586,800
    
    
    
    6.809.18
- 12.59
    
    
    2,588,480
    
    
    
    6
    
    
    
    10.54
    
    
    
    552,518
    
    
    
    10.6112.60
- 35.88
    
    
    2,468,890
    
    
    
    8
    
    
    
    26.97
    
    
    
    
    
    
    
    8,723,170
    
    
    
    
    
    
    
    
    
    
    
    2,859,318
      2005
    
    
    2004
    
    
    2003Net earnings
 as reported
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Add: Stock option employee compensation expense
included in reported net earnings
    
    
    14,751
    
    
    
    7,206
    
    
    
    2,439Deduct: Total stock option employee compensation expense
determined under fair value based method for all awards
    
    
    (14,828
    )
    
    
    (7,810
    )
    
    
    (3,893
    )Net
earnings  pro forma
    
    $
    217,554
    
    
    $
    278,181
    
    
    $
    206,709Pro forma basic earnings per share
    
    $
    0.63
    
    
    $
    0.81
    
    
    $
    0.61Pro forma diluted earnings per share
    
    $
    0.60
    
    
    $
    0.78
    
    
    $
    0.60
  2005
    
    
    2004
    
    
    2003Number of options granted
    
    
    2,631,180
    
    
    
    4,170,000
    
    
    
    4,238,100Average strike price
    
    $
    27.11
    
    
    $
    11.42
    
    
    $
    6.43Expected dividend
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.10Expected volatility
    
    
    34
    %
    
    
    37
    %
    
    
    20
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    3.3
    %
    
    
    4.1
    %Expected life of option
    
    4 years
    
    

    4 years
    
    
    5 yearsExpected forfeitures
    
    
    15
    %
    
    
    15
    %
    
    
    10
    %Weighted average grant date fair values
    
    $
    8.36
    
    
    $
    3.39
    
    
    $
    1.36
  16




---



##### 



Executive Performance Share Unit (PSU), Deferred Share Unit (DSU), and Other Plans
     2005
    
    
    2004
    
    
    2003Performance share units
    
    $
    2,011
    
    
    $
    
    
    
    $
    Deferred share units
    
    
    4,089
    
    
    
    1,896
    
    
    
    1,032Phantom stock options
    
    
    8,537
    
    
    
    4,376
    
    
    
    3,058
 18. Pension and Other Post-Retirement Benefits
    (a) Accrued Benefit Obligation
 Pension Benefit Plans
    
    
    Other Benefit Plans2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    16,478
    
    
    $
    15,380
    
    
    $
    4,460
    
    
    $
    3,389Current service cost
    
    
    803
    
    
    
    806
    
    
    
    226
    
    
    
    186Interest cost
    
    
    849
    
    
    
    1,031
    
    
    
    271
    
    
    
    271Actuarial loss (gain)
    
    
    
    
    
    
    
    
    
    
    2,364
    
    
    
    (26
    )Plan amendments
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    772Benefits paid
    
    
    (2,199
    )
    
    
    (576
    )
    
    
    (176
    )
    
    
    (132
    )Foreign exchange rate changes
    
    
    (5
    )
    
    
    (163
    )
    
    
    
    
    
    
    $
    15,926
    
    
    $
    16,478
    
    
    $
    7,403
    
    
    $
    4,460
  17




---



##### 



(b) Plan Assets
 Pension Benefit Plans2005
    
    
    2004Fair value at beginning of year
    
    $
    23,201
    
    
    $
    21,758Actual return on plan assets
    
    
    1,337
    
    
    
    885Employer contributions
    
    
    1,064
    
    
    
    1,134Benefits paid
    
    
    (2,199
    )
    
    
    (576
    )Fair value at end of year
    
    $
    23,403
    
    
    $
    23,201
  Pension Benefit Plans2005
    
    
    2004Asset Category (i)Equity securities
    
    
    32
    %
    
    
    32
    %Bonds
    
    
    20
    %
    
    
    22
    %Other (ii)
    
    
    48
    %
    
    
    46
    %Total
    
    
    100
    %
    
    
    100
    %
 
 (i)
    
    The defined benefit plan assets contain no material amounts of related party assets at December
31, 2005 and 2004 respectively.(ii)
    
    Relates to the value of the refundable tax account held by the Canada Revenue Agency. The
refundable total is approximately equal to half of the sum of the realized investment income plus
employer contributions less half of the benefits paid by the plan. (c) Funded Status Reconciliation
 Pension Benefit Plans
    
    
    Other Benefit Plans2005
    
    
    2004
    
    
    2005
    
    
    2004Fair value of plan assets
    
    $
    23,403
    
    
    $
    23,201
    
    
    $
    
    
    
    $
    Accrued benefit obligation
    
    
    15,926
    
    
    
    16,478
    
    
    
    7,403
    
    
    
    4,460Funded
status of plans  surplus (deficit)
    
    
    7,477
    
    
    
    6,723
    
    
    
    (7,403
    )
    
    
    (4,460
    )Unamortized net actuarial loss
    
    
    1,249
    
    
    
    1,740
    
    
    
    
    
    
    
    Unamortized transitional obligation
    
    
    963
    
    
    
    1,669
    
    
    
    
    
    
    
    Accrued benefit asset (liability) [notes 5, 8]
    
    $
    9,689
    
    
    $
    10,132
    
    
    $
    (7,403
    )
    
    $
    (4,460
    )
 (d) Net Pension Expense
 2005
    
    
    2004
    
    
    2003Current service cost
    
    $
    803
    
    
    $
    806
    
    
    $
    806Interest cost
    
    
    849
    
    
    
    1,031
    
    
    
    984Actual return on plan assets
    
    
    (1,337
    )
    
    
    (885
    )
    
    
    (711
    )Actuarial gain
    
    
    
    
    
    
    
    
    
    
    (483
    )Balance prior to adjustments to recognize the long-term
nature of employee future benefit costs
    
    
    315
    
    
    
    952
    
    
    
    596Difference between actual and expected return on plan
assets in the year
    
    
    491
    
    
    
    60
    
    
    
    110Difference between actuarial loss recognized for
year and actual actuarial (gain) on accrued benefit
obligation for year
    
    
    
    
    
    
    87
    
    
    
    672Amortization of transitional obligation
    
    
    706
    
    
    
    694
    
    
    
    694Defined benefit pension expense
    
    
    1,512
    
    
    
    1,793
    
    
    
    2,072Defined contribution pension expense
    
    
    6,569
    
    
    
    5,418
    
    
    
    4,857Net pension expense
    
    $
    8,081
    
    
    $
    7,211
    
    
    $
    6,929
  18




---



##### 



2005
    
    
    2004
    
    
    2003Significant assumptions at December 31Discount rate
    
    
    5.3
    %
    
    
    6.5
    %
    
    
    6.5
    %Rate of compensation increase
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.5
    %Long-term rate of return on assets
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    7.0
    %
 (e) Other Post-Retirement Benefit Expense (Gain)
 2005
    
    
    2004
    
    
    2003Current service cost
    
    $
    226
    
    
    $
    186
    
    
    $
    129Interest cost
    
    
    271
    
    
    
    271
    
    
    
    206Actuarial (gain) loss
    
    
    2,364
    
    
    
    (26
    )
    
    
    (952
    )Plan amendment costs
    
    
    258
    
    
    
    772
    
    
    
    Other post-retirement benefit expense (gain)
    
    $
    3,119
    
    
    $
    1,203
    
    
    $
    (617
    )
 2005
    
    
    2004
    
    
    2003Significant assumptions at December 31Discount rate
    
    
    5.3
    %
    
    
    6.5
    %
    
    
    6.5
    %Initial health care cost trend rate
    
    
    11
    %
    
    
    11
    %
    
    
    11
    %Cost trend rate declines to
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %Year the rate reaches its final level
    
    
    2011
    
    
    
    2008
    
    
    
    2008
 (f) Pension and Other Post-Retirement Benefits Cash Payments
 2005
    
    
    2004
    
    
    2003Employer contributions to funded pension plans
    
    $
    1,599
    
    
    $
    567
    
    
    $
    10,885Benefits paid for unfunded benefit plans
    
    
    176
    
    
    
    132
    
    
    
    86Cash contributions to defined contribution plans
    
    
    6,569
    
    
    
    5,418
    
    
    
    4,857Total cash payments for employee future benefits
    
    $
    8,344
    
    
    $
    6,117
    
    
    $
    15,828
 BPLP
    (a) Funded Status Reconciliation
 Pension Benefit Plans
    
    Other Benefit Plans2005
    
    2005Fair value of plan assets
    
    $
    526,188
    
    
    $
    Accrued benefit obligation
    
    
    658,690
    
    
    
    67,103Funded
status of plans  deficit
    
    
    (132,502
    )
    
    
    (67,103
    )Unamortized net actuarial (gain) loss
    
    
    150,621
    
    
    
    (11,046
    )Accrued benefit asset (liability) [notes 5, 8]
    
    $
    18,119
    
    
    $
    (78,149
    )
  19




---



##### 



(b) Pension Asset Categories
 Asset Allocation
    
    Target Allocation2005
    
    2005Asset Category (i)Equity securities
    
    
    70
    %
    
    
    70
    %Fixed income
    
    
    29
    %
    
    
    30
    %Cash
    
    
    1
    %
    
    
    Total
    
    
    100
    %
    
    
    100
    %
   (c) Net Benefit Expense
 Pension Benefit Plans
    
    Other Benefit Plans2005
    
    2005Current service cost
    
    $
    3,099
    
    
    $
    555Interest cost
    
    
    5,301
    
    
    
    550Actual return on plan assets
    
    
    (12,425
    )
    
    
    Actuarial loss
    
    
    18,412
    
    
    
    1,935Balance prior to adjustments to recognize the long-term
nature of employee future benefit costs
    
    
    14,387
    
    
    
    3,040Difference between actual and expected return on plan
assets in the year
    
    
    7,157
    
    
    
    Difference between actuarial (gain) loss recognized and
actual actuarial loss on accrued benefit obligation for year
    
    
    (17,840
    )
    
    
    (2,227
    )Net benefit expense
    
    $
    3,704
    
    
    $
    813
 (d) Assumptions
 Pension Benefit Plans
    
    Other Benefit Plans2005
    
    2005Significant assumptions at December 31Discount rate
    
    
    5.3
    %
    
    
    5.0
    %Rate of compensation increase
    
    
    3.5
    %
    
    
    3.5
    %Long-term rate of return on assets
    
    
    7.3
    %
    
    
    Assumed health care cost trend rates as at December 31Initial health care cost trend rate
    
    
    
    
    
    
    10.0
    %Cost trend rate declines to
    
    
    
    
    
    
    4.5
    %Year the rate reaches its final level
    
    
    
    
    
    
    2011
 (e) Pension and Other Post-Retirement Benefits Cash Payments
 2005Employer contributions to funded pension plans
    
    $
    Benefits paid for unfunded benefit plans
    
    
    189Total cash payments for employee future benefits
    
    $
    189
   20




---



##### 



Pension Benefit Plan
    
    Other Benefit Plans2006
    
    $
    7,500
    
    
    $
    1,5002007
    
    
    10,500
    
    
    
    1,8002008
    
    
    13,800
    
    
    
    2,1002009
    
    
    17,200
    
    
    
    2,3002010
    
    
    20,900
    
    
    
    2,7002011 to 2015
    
    
    159,500
    
    
    
    17,900
 19. Goodwill
   20. Restructuring of the Gold Business
 (a) Initial Public Offering
  (b) Acquisition of 66.7% Interest in KGC
   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
    
    $
    357,614
 Financed 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 (AGR)
 (i)
    
    Acquisition of 56.2% Interest in AGR
On March 5, 2002, Cameco acquired a 52.2% interest in 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 neighbouring 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.
  21




---



##### 



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
  (ii)
    
    Acquisition of 43.8% Interest in AGREffective 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.
  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 Debt
  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 Gain
   22




---



##### 



21. Commitments and Contingencies
 (a)
    
    Cameco signed a toll-conversion agreement with British Nuclear Fuels plc (BNFL) to
acquire uranium UF6conversion services from BNFLs Springfields plant in Lancashire, United Kingdom. Under the
10-year agreement, BNFL is obligated to annually convert a base quantity of five million kgU as UO 3
to UF 6 for Cameco.(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 tortuous 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 his appeal to the Supreme Court of the
United States was also denied.On October 9, 2005, Oren Benton filed a claim in Regina, Saskatchewan. The claim is similar
to the action he commenced in Colorado except it does not specify the amount of damages
claimed. 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 and
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 4% 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. The non-jury trial for this matter had originally been
scheduled to start on June 20, 2005. The presiding judge had rescheduled the trial to August 5,
2005. On April 29, 2005, a hearing was held on MWMs motion that the Statement of Defense filed
by PRI and the other defendants be struck, and the competing motion by PRI and the two other
defendants that MWMs complaint be struck. The Magistrate Judge issued a report to the
presiding judge on May 27, 2005 recommending that the defendants motion to strike MWMs
complaint be granted. The presiding judge endorsed the report of the Magistrate Judge and
issued a judgment on September 15, 2005 dismissing MWMs claim and awarding the defendants
legal costs. The judgment is now being appealed.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 financial impact on Camecos financial
position, results of operations and liquidity.(d)
    
    On February 9, 2006, Cameco was served with a Statement of Claim issued out of the Ontario
Superior Court of Justice by Rio Algom Limited (Rio Algom). Cameco is named in the Statement
of Claim as a co-defendant with
The Attorney General of Canada. In the Statement of Claim, Rio Algom is claiming against
Cameco and The Attorney General of Canada $75,000,000 in damages plus costs and
pre-judgment interest. The claim relates to tailings management costs incurred by Rio Algom
for the now defunct uranium mines in the Elliott Lake area of northern
Ontario. Rio Algom claims it is entitled to recover these costs under uranium sales
agreements entered into in the 1950s by Rio Algoms predecessors and Eldorado Nuclear
Mining and Refining Ltd., a federal crown corporation. Rio Algom claims Cameco is now
responsible for Eldorado Nuclear Mining and Refining Ltd.s historical liabilities.(d)
    
    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 and liquidity.(e)
    
    In the fourth quarter, KGC entered into contracts to purchase plant and equipment for
$62,200,000 (US). These commitments are expected to be settled in 2006.(f)
    
    Annual supplemental rents of $26,000,000 (subject to CPI) per operating reactor are payable
by BPLP to OPG. Should the hourly annual average price of electricity in Ontario fall below $30 per
megawatt hour, the supplemental rent reduces to $13,000,000 per operating reactor. In
accordance with the Sublease Agreement, Bruce A L.P. will participate in its share of any
adjustments to the supplemental rent.(g)
    
    Cameco, TransCanada and BPC have assumed the obligations to provide financial guarantees on
behalf of BPLP. Cameco has provided the following financial assurances, with varying terms that range from
2004 to 2018:
 i)
    
    Licensing assurances to Canadian Nuclear Safety Commission of up to $133,300,000.
At December 31, 2005, Camecos actual exposure under these assurances was $23,700,000.ii)
    
    Guarantees to customers under power sales agreements of up to $166,700,000. At December 31,
2005, Camecos actual exposure under these guarantees was $102,200,000.iii)
    
    Termination payments to OPG pursuant to the lease agreement of $58,300,000.
  23




---



##### 



(h)
    
    Commitments
 At December 31, 2005, Camecos purchase commitments, the majority of which are fixed price
uranium and conversion purchase arrangements, were as follows:
 (Millions (US))2006
    
    $
    1412007
    
    
    1262008
    
    
    1362009
    
    
    1262010
    
    
    114Thereafter
    
    
    413Total
    
    $
    1,056
 22. Financial Instruments
      Currency
  (Millions)
    
    US
    
    
    Rate
    
    
    Cdn
    
    
    Euro
    
    
    Rate
    
    
    US2006
    
    $
    467
    
    
    
    1.29
    
    
    $
    602
    
    
    
    9
    
    
    
    1.19
    
    
    $
    112007
    
    
    370
    
    
    
    1.24
    
    
    
    458
    
    
    
    11
    
    
    
    1.20
    
    
    
    132008
    
    
    195
    
    
    
    1.21
    
    
    
    236
    
    
    
    7
    
    
    
    1.20
    
    
    
    82009
    
    
    100
    
    
    
    1.18
    
    
    
    118
    
    
    
    5
    
    
    
    1.20
    
    
    
    6Total
    
    $
    1,132
    
    
    
    1.25
    
    
    $
    1,414
    
    
    
    32
    
    
    
    1.20
    
    
    $
    38
    24




---



##### 



23. Per Share Amounts
  2005
    
    
    2004
    
    
    2003Basic earnings per share computationNet earnings
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Weighted average common shares outstanding
    
    
    347,864
    
    
    
    342,890
    
    
    
    336,718Basic earnings per common share
    
    $
    0.63
    
    
    $
    0.81
    
    
    $
    0.62Diluted earnings per share computationNet earnings
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Dilutive effect of:Convertible debentures
    
    
    8,394
    
    
    
    8,055
    
    
    
    2,290Net earnings, assuming dilution
    
    $
    226,025
    
    
    $
    286,840
    
    
    $
    210,453Weighted average common shares outstanding
    
    
    347,864
    
    
    
    342,890
    
    
    
    336,718Dilutive effect of:Convertible debentures
    
    
    21,214
    
    
    
    21,230
    
    
    
    5,700Stock options
    
    
    4,614
    
    
    
    4,338
    
    
    
    3,894Weighted average common shares outstanding,
assuming dilution
    
    
    373,692
    
    
    
    368,458
    
    
    
    346,312Diluted earnings per common share
    
    $
    0.60
    
    
    $
    0.78
    
    
    $
    0.61
  25




---



##### 



24. Segmented Information
    (a) Business Segments
 2005
    
    
    
    
    
    
    
    
    
    (i)
    
    
    
    
    
    
    
    
    
    
    (i)(Millions)
    
    Uranium
    
    
    Conversion
    
    
    Power
    
    
    Gold
    
    
    Subtotal
    
    
    Adjustments
    
    
    TotalRevenue
    
    $
    690.1
    
    
    $
    157.7
    
    
    $
    577.8
    
    
    $
    412.1
    
    
    $
    1,837.7
    
    
    $
    (525.0
    )
    
    $
    1,312.7ExpensesProducts and services sold
    
    
    428.5
    
    
    
    120.2
    
    
    
    315.4
    
    
    
    231.0
    
    
    
    1,095.1
    
    
    
    (281.1
    )
    
    
    814.0Depreciation, depletion
and reclamation
    
    
    102.1
    
    
    
    9.8
    
    
    
    76.6
    
    
    
    73.9
    
    
    
    262.4
    
    
    
    (64.8
    )
    
    
    197.6Exploration
    
    
    25.7
    
    
    
    
    
    
    
    
    
    
    
    31.8
    
    
    
    57.5
    
    
    
    
    
    
    
    57.5Research and development
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    2.4Other
    
    
    (79.5
    )
    
    
    
    
    
    
    109.1
    
    
    
    
    
    
    
    29.6
    
    
    
    (13.3
    )
    
    
    16.3Gain on sale of assets
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.2
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (1.5
    )Earnings from Bruce Power
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165.8
    )
    
    
    (165.8
    )Non-segmented expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117.6Earnings before income taxes and
minority interest
    
    
    213.5
    
    
    
    25.4
    
    
    
    76.7
    
    
    
    76.6
    
    
    
    392.2
    
    
    
    
    
    
    
    274.6Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.3Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.7Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    217.6Assets
    
    $
    2,927.0
    
    
    $
    239.3
    
    
    $
    786.6
    
    
    $
    819.9
    
    
    $
    4,772.8
    
    
    $
    
    
    
    $
    4,772.8Capital expenditures for the year
    
    $
    203.8
    
    
    $
    18.4
    
    
    $
    335.2
    
    
    $
    39.9
    
    
    $
    597.3
    
    
    $
    (312.4
    )
    
    $
    284.9
 2004
    
    
    
    
    
    
    
    
    
    (i)
    
    
    
    
    
    
    
    
    
    
    (i)(Millions)
    
    Uranium
    
    
    Conversion
    
    
    Power
    
    
    Gold
    
    
    Subtotal
    
    
    Adjustments
    
    
    TotalRevenue
    
    $
    581.5
    
    
    $
    144.5
    
    
    $
    513.4
    
    
    $
    322.5
    
    
    $
    1,561.9
    
    
    $
    (513.4
    )
    
    $
    1,048.5ExpensesProducts and services sold
    
    
    377.9
    
    
    
    101.9
    
    
    
    313.5
    
    
    
    143.3
    
    
    
    936.6
    
    
    
    (313.5
    )
    
    
    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
  26




---



##### 



(i)
    
    
    
    
    
    
    
    
    

(i)2003
    
    Uranium
    
    Conversion
    
    Power
    
    Gold
    
    Subtotal
    
    Adjustments
    
    Total(Millions)Revenue
    
    $
    570.3
    
    
    $
    142.4
    
    
    $
    364.7
    
    
    $
    114.2
    
    
    $
    1,191.6
    
    
    $
    (364.7
    )
    
    $
    826.9ExpensesProducts and services sold
    
    
    394.2
    
    
    
    91.8
    
    
    
    221.0
    
    
    
    52.2
    
    
    
    759.2
    
    
    
    (221.0
    )
    
    
    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
 
 (i)
    
    Consistent with the presentation of financial information for internal management purposes,
Camecos pro rata share of BPLPs financial results have been presented as a separate segment. In
accordance with GAAP, this investment was accounted for by the equity method of accounting in these
consolidated financial statements to October 31, 2005 [note 16] and the associated revenues and
expenses prior to the restructuring are eliminated in the adjustments column.
 (b) Geographic Segments
 (Millions)
    
    2005
    
    
    2004
    
    
    2003Revenue from products and servicesCanada  domestic
    
    $
    56.2
    
    
    $
    77.4
    
    
    $
    40.2 export
    
    
    267.7
    
    
    
    244.0
    
    
    
    337.5United States
    
    
    576.7
    
    
    
    404.6
    
    
    
    335.0Kyrgyzstan
    
    
    260.5
    
    
    
    207.8
    
    
    
    114.2Mongolia
    
    
    151.6
    
    
    
    114.7
    
    
    
    $
    1,312.7
    
    
    $
    1,048.5
    
    
    $
    826.9AssetsCanada
    
    $
    3,767.5
    
    
    $
    3,089.2
    
    
    $
    2,882.4United States
    
    
    302.0
    
    
    
    246.3
    
    
    
    233.1Kyrgyzstan
    
    
    474.7
    
    
    
    494.5
    
    
    
    163.7Mongolia
    
    
    188.4
    
    
    
    193.3
    
    
    
    130.0Kazakhstan
    
    
    40.2
    
    
    
    28.8
    
    
    
    22.0$
    4,772.8
    
    
    $
    4,052.1
    
    
    $
    3,431.2
 (c) Major Customers
    27




---



##### 



25. Generally Accepted Accounting Principles in Canada and the United States
 
 (a)
    
    Reconciliation of earnings in accordance with Canadian GAAP to earnings determined in accordance with US GAAP:
 2005
    
    
    2004
    
    
    2003Net earnings under Canadian GAAP
    
    $
    217,631
    
    
    $
    278,785
    
    
    $
    208,163Add (deduct) adjustments for (d):Depreciation and depletion (i)
    
    
    
    
    
    
    1,618
    
    
    
    2,579Mineral property costs (ii)
    
    
    (1,760
    )
    
    
    11,028
    
    
    
    (7,218
    )Pre-operating costs (iii)
    
    
    1,512
    
    
    
    3,658
    
    
    
    1,512Hedges and derivative instruments (iv)
    
    
    (1,765
    )
    
    
    (12,104
    )
    
    
    12,304Earnings from BPLP (iii) (iv)
    
    
    25,407
    
    
    
    2,015
    
    
    
    (13,938
    )Income tax effect of adjustments
    
    
    (7,785
    )
    
    
    (1,808
    )
    
    
    2,034Net earnings before cumulative effect of a change
in accounting policy
    
    
    233,240
    
    
    
    283,192
    
    
    
    205,436Cumulative effect of a change in accounting policy (vi)
    
    
    
    
    
    
    
    
    
    
    10,683Net earnings under US GAAP
    
    
    233,240
    
    
    
    283,192
    
    
    
    216,119Hedges and derivative instruments (iv)
    
    
    (36,748
    )
    
    
    32,691
    
    
    
    29,508Foreign currency translation adjustments (v)
    
    
    (12,875
    )
    
    
    (27,266
    )
    
    
    (32,309
    )Unrealized gain (loss) on available-for-sale securities (vii)
    
    
    (60,606
    )
    
    
    36,849
    
    
    
    21,410Comprehensive income under US GAAP
    
    $
    123,011
    
    
    $
    325,466
    
    
    $
    234,728Basic net earnings per share under US GAAP*
    
    $
    0.67
    
    
    $
    0.83
    
    
    $
    0.64Diluted earnings per share under US GAAP*
    
    $
    0.65
    
    
    $
    0.79
    
    
    $
    0.63
 
  (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
 2005
    
    2004Canadian
    
    US
    
    Canadian
    
    USGAAP
    
    GAAP
    
    GAAP
    
    GAAPCurrent assets
    
    $
    1,524,459
    
    
    $
    1,399,575
    
    
    $
    851,240
    
    
    $
    851,240Property, plant and equipment
    
    
    2,871,337
    
    
    
    2,261,614
    
    
    
    2,281,418
    
    
    
    2,194,751Long-term receivables, investments
and other
    
    
    196,747
    
    
    
    462,437
    
    
    
    732,262
    
    
    
    832,924Goodwill
    
    
    180,232
    
    
    
    180,232
    
    
    
    187,184
    
    
    
    187,184Total assets
    
    $
    4,772,775
    
    
    $
    4,303,858
    
    
    $
    4,052,104
    
    
    $
    4,066,099Current liabilities
    
    $
    609,048
    
    
    $
    518,005
    
    
    $
    296,319
    
    
    $
    296,319Long-term debt
    
    
    702,109
    
    
    
    523,149
    
    
    
    518,603
    
    
    
    546,233Provision for reclamation
    
    
    167,568
    
    
    
    167,568
    
    
    
    166,941
    
    
    
    166,941Other liabilities
    
    
    124,780
    
    
    
    35,614
    
    
    
    31,086
    
    
    
    31,086Deferred income taxes
    
    
    444,942
    
    
    
    419,664
    
    
    
    533,024
    
    
    
    522,1142,048,447
    
    
    
    1,664,000
    
    
    
    1,545,973
    
    
    
    1,562,693Minority interest
    
    
    360,697
    
    
    
    360,697
    
    
    
    345,611
    
    
    
    345,611Shareholders equityShare capital
    
    
    779,035
    
    
    
    779,035
    
    
    
    750,559
    
    
    
    750,559Contributed surplus
    
    
    523,300
    
    
    
    492,827
    
    
    
    511,674
    
    
    
    481,201Retained earnings
    
    
    1,114,693
    
    
    
    1,042,373
    
    
    
    938,809
    
    
    
    850,880Accumulated other comprehensive income cumulative translation account (v)
    
    
    (53,397
    )
    
    
    (32,175
    )
    
    
    (40,522
    )
    
    
    (19,300
    ) available-for-sale securities (vii)
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    60,713 hedges and derivative instruments (iv)
    
    
    
    
    
    
    (3,006
    )
    
    
    
    
    
    
    33,7422,363,631
    
    
    
    2,279,161
    
    
    
    2,160,520
    
    
    
    2,157,795Total liabilities and shareholders equity
    
    $
    4,772,775
    
    
    $
    4,303,858
    
    
    $
    4,052,104
    
    
    $
    4,066,099
  28




---



##### 



(ii)
    
    Components of accounts payable and accrued liabilities are as follows:
 2005
    
    2004Canadian
    
    US
    
    Canadian
    
    USGAAP
    
    GAAP
    
    GAAP
    
    GAAPAccounts payable
    
    $
    217,360
    
    
    $
    126,320
    
    
    $
    137,901
    
    
    $
    137,901Taxes and royalties payable
    
    
    88,539
    
    
    
    88,539
    
    
    
    55,258
    
    
    
    55,258Accrued liabilities
    
    
    44,500
    
    
    
    44,500
    
    
    
    38,538
    
    
    
    38,538Total accounts payable and
accrued liabilities
    
    $
    350,399
    
    
    $
    259,359
    
    
    $
    231,697
    
    
    $
    231,697
 (c) The effects of these adjustments would result in the consolidated statements of cash flows reporting the
following under US GAAP:
 2005
    
    
    2004
    
    
    2003Cash provided by operations
    
    $
    283,176
    
    
    $
    239,070
    
    
    $
    242,538Cash provided by (used in) investing
    
    $
    36,742
    
    
    $
    (171,715
    )
    
    $
    (455,988
    )Cash provided by financing
    
    $
    101,202
    
    
    $
    54,014
    
    
    $
    251,321
 (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 2005 and 2004, there were no differences in accounting for mineral
property development costs. In 2003, $7,218,000 was expensed under US GAAP. 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 $1,760,000 (2004  $1,614,000; 2003 
nil).

Prior to 2004, the mineral property costs expensed under US GAAP included a provision for
loan impairment totalling $12,642,000. Due to the recognition of reserves and the
completion of a final feasibility study, Cameco was able to demonstrate the loan to be
recoverable and reversed the impairment provision in 2004.(iii)
    
    Pre-Operating 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. Under US GAAP, such costs are expensed as incurred as required by AICPA
Statement of Position 98-5, Reporting on the Cost of Start-Up Activities. McArthur River
commercial production commenced March 1, 2000 for US GAAP and November 1, 2000 for Canadian
GAAP. Differences in capitalized costs are amortized over the estimated lives of the assets
to which they relate.

During 2004, $1,048,000 (2003  $17,917,000) of costs related to the restart of two nuclear
reactors at BPLP were considered to be start-up costs required to be expensed under US
GAAP. As a result of expensing these start-up costs, there 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 $2,329,000 (2004  $2,445,000;
2003  nil).

In 2005, the BPLP agreement was restructured resulting in the disposition of certain assets
and recognition of a loss. Under US GAAP, the carrying value of these assets was less than
under Canadian GAAP. Accordingly, the pre-tax loss has been reduced by $22,820,000.
  29




---



##### 



(iv)
    
    Hedges and Derivative InstrumentsUnder US GAAP, all derivative instruments are recognized on the balance sheet as either assets
or liabilities measured at fair value. Changes in the fair value of derivatives are recognized
in earnings unless specific hedge criteria are met to qualify as a cash flow hedge. Changes in
the fair value of derivatives that qualify as fair value hedges, are recognized in earnings in
the same period as the hedged items. Changes in the fair value of the effective portion of a
cash flow hedge are deferred in other comprehensive income with any ineffectiveness of the
hedge recognized immediately on the statement of earnings.

Prior to 2004, forward points were included in the assessment of hedge effectiveness for
Canadian GAAP purposes and excluded for US GAAP purposes. The cumulative impact of this difference was $16,042,000 at December 31, 2003 of which $1,765,000 was recognized in 2005
(2004  $12,104,000).For amounts included in the balance sheet as accumulated other comprehensive income as at
December 31, 2005, a gain of $21,883,000 (after tax) relates to the hedging of foreign exchange
risk. Of these amounts, $8,794,000 (after tax) would be recorded in earnings during 2006 if
market conditions remained unchanged. The impact on other comprehensive income for 2005 is a
loss of $14,583,000 (2004  gain of $38,814,000; 2003 
gain of $26,107,000).

BPLP also has certain derivative instruments that qualify for hedge accounting. For amounts
included in the balance sheet as accumulated other comprehensive income as at December 31,
2005, a loss of $24,887,000 (after tax) relates to the hedging of electricity price risk. Of
this amount, $16,520,000 (after tax) would be recorded in earnings for 2006 if market
conditions remained unchanged. The impact on other comprehensive income for hedge accounting
for 2005 is a loss of $22,165,000 (2004  loss of $6,123,000;
2003  gain of $3,401,000).

Prior to August 2003, certain BPLP energy contracts did not qualify for hedge accounting under
US GAAP as the documentation required for hedge accounting was not contemplated at the time of
entering into the contracts. Accordingly, changes in the fair value of these contracts were
charged to US GAAP earnings. Under Canadian GAAP, hedge accounting was applied prior to August
2003, resulting in differences to be recognized in future periods. As a result of this past
difference in hedge accounting treatment, $259,000 was recognized in earnings in 2005 (2004 
$618,000; 2003  $3,979,000).(v)
    
    Cumulative Translation AccountUnder US GAAP, exchange gains and losses arising from the translation of our net investments in
foreign operations are included in comprehensive income. In addition, exchange gains and losses
of any foreign currency debt designated as hedges of those net investments are included in
comprehensive income. Cumulative amounts are included in accumulated other comprehensive income
on the balance sheet.(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 effect of the change in policy on the balance sheet at December 31, 2002
is to increase property, plant and equipment by $22,827,000, future income taxes by $7,646,000,
liabilities by $4,498,000 and opening retained earnings by $10,683,000. Under US GAAP, the
adjustment of $10,683,000 is recorded in income in 2003 as a cumulative effect of a change in
accounting policy.(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 investment in Energy Resources of Australia Ltd was sold
in 2005 and the investments in Batavia Mining Ltd. and Tenke Mining Corp. were sold in 2004.
The fair market value of the owned investments at December 31, 2005 is $887,000 (2004 
$79,785,000). The cumulative unrealized gain at December 31, 2005 is $107,000 (2004 
$60,713,000).
  30




---



##### 



(e)
    
    Investment in BPLPUnder Canadian GAAP, Cameco accounts for its interest in BPLP by the proportionate
consolidation method. Under US GAAP, Cameco is required to equity account for its investment
and record in earnings its proportionate share of their net earnings measured in accordance
with US GAAP.(f)
    
    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 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:
 2005
    
    
    2004
    
    
    2003Net earnings for the year in accordance
with US GAAP as calculated above
    
    $
    233,240
    
    
    $
    283,192
    
    
    $
    216,119Effect of recording compensation
expense under stock options plans
    
    
    (77
    )
    
    
    (604
    )
    
    
    (2,027
    )Pro forma net earnings after application of SFAS 123
    
    $
    233,163
    
    
    $
    282,588
    
    
    $
    214,092Pro forma basic net earnings per common
share after application of SFAS 123*
    
    $
    0.67
    
    
    $
    0.82
    
    
    $
    0.64Pro forma diluted net earnings per common
share after application of SFAS 123*
    
    $
    0.65
    
    
    $
    0.79
    
    
    $
    0.62
 
 *
    
    Per share amounts for 2004 and 2003 have been restated to reflect the stock split [note 9].
 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
    
    
    2001Dividend
    
    $
    0.09
    
    
    $
    0.09Expected volatility
    
    
    20.0
    %
    
    
    39.6
    %Risk-free interest rate
    
    
    5.0
    %
    
    
    5.5
    %Expected life of option
    
    5 years
    
    8 yearsExpected forfeitures
    
    
    17.0
    %
    
    
    20.0
    %Weighted average grant date fair values
    
    $
    1.81
    
    
    $
    2.27
 (g)
    
    New Accounting PronouncementsIn March 2005, the FASB issued Financial Interpretation 47, Accounting for Conditional Asset
Retirement Obligations (FIN 47). FIN 47 clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations,
refers to a legal obligation to perform an asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing
and (or) method of settlement may be conditional on a future event. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated. FIN 47 also
clarifies when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal
years
  31




---



##### 



ending after December 15, 2005. The adoption of this statement did not have a material
impact on Camecos consolidated financial statements.

In March 2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 04-6,
Accounting for Stripping Costs Incurred during Production in the Mining Industry. In the
mining industry, companies may be required to remove overburden and other mine waste
materials to access mineral deposits. The EITF concluded that the costs of removing
overburden and waste materials, often referred to as stripping costs, incurred during the
production phase of a mine are variable production costs that should be included in the
costs of the inventory produced during the period that the stripping costs are incurred.
Issue No. 04-6 is effective for the first reporting period in fiscal years beginning after
December 15, 2005, with early adoption permitted. Cameco does not expect the adoption of
this statement will have a material impact on its consolidated financial statements.In June 2005, the FASB issued Statement 154, Accounting Changes and Error Corrections,
which replaces APB Opinion 20 and FASB Statement 3. Statement 154 changes the requirements
for the accounting and reporting of a change in accounting principle. Opinion 20 previously
required that most voluntary changes in accounting principle be recognized by including the
cumulative effect of the new accounting principle in net income of the period of the
change. Statement 154 now requires retrospective application of changes in accounting
principle to prior period financial statements, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change. The Statement is
effective for fiscal years beginning after December 15, 2005. Cameco does not expect the
adoption of this statement will have a material impact on its consolidated financial
statements.
 26. Subsequent Events
 (a)
    
    On February 1, 2006, Cameco announced it had completed the acquisition of a 100%
interest in Zircatec Precision Industries, Inc. for $108,000,000, subject to closing
adjustments. Zircatecs primary business is manufacturing nuclear fuel bundles for sale to
companies that generate electricity for Candu reactors. Cameco used cash to fund this
acquisition that is expected to be moderately accretive to cash flow and earnings in 2006,
assuming there is no significant change to existing revenue and costs.(b)
    
    On January 31, 2006, the board of directors of Cameco approved a split of the companys
outstanding common shares on a two-for-one basis. The stock split was effected in the form of a
stock dividend of one additional common share for each share owned by shareholders of record at
the close of business on February 17, 2006.
 27. Comparative Figures
 Certain prior year balances have been reclassified to conform to the current financial
statement presentation.
  32




---



##### 



Summary of Significant Accounting Policies
  Consolidation Principles
  Cash
  Inventories
  Supplies
  Investments
  Property, Plant and Equipment
  Non-Producing Properties
   Property Evaluations
  Goodwill
  Future Income Taxes
  Capitalization of Interest
   33




---



##### 



Depreciation and Depletion
    Research and Development and Exploration Costs
  Environmental Protection and Reclamation Costs
  Employee Future Benefits
    Stock-Based Compensation
    Revenue Recognition
       34




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##### 



Amortization of Financing Costs
  Foreign Currency Translation
   Derivative Financial Instruments and Hedging Transactions
   Earnings Per Share
    35