Cameco Corporation 2006 Annual Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated March 19, 2007, presents Cameco Corporation's audited Consolidated Financial Statements for the fiscal year ended December 31, 2006. Cameco is a global uranium producer and fuel services provider, with operations in uranium mining, conversion, and fabrication. The company also holds a 31.6% interest in Bruce Power L.P. (BPLP), which operates nuclear reactors in Ontario, and a 52.7% interest in Centerra Gold Inc. The financial statements are prepared in accordance with Canadian GAAP, with reconciliations provided for US GAAP.
Key Financial Metrics (2006)
| Metric | 2006 ($Cdn Millions) | 2005 ($Cdn Millions) |
|---|---|---|
| Revenue | 1,831.7 | 1,312.7 |
| Net Earnings | 375.7 | 215.5 |
| Earnings Per Share (Diluted) | $1.02 | $0.60 |
| Cash Provided by Operations | 418.0 | 277.5 |
| Total Assets | 5,140.4 | 4,772.8 |
| Total Debt (Long-term + Current) | 704.6 | 858.8 |
| Cash and Equivalents | 334.1 | 623.2 |
Note: Figures are in Canadian dollars. Net earnings include a significant tax recovery of $68.8 million.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 39.5% to $1.83 billion, driven by higher uranium prices and increased production volumes across uranium and fuel services segments.
- Profitability Surge: Net earnings rose 74% to $375.7 million. This was significantly aided by a $68.8 million income tax recovery due to legislative changes reducing corporate tax rates and the confirmation of deductibility for prior-year resource surcharges.
- Debt Reduction: Total debt decreased by approximately $154 million. Cameco redeemed $152 million in Series A and B debentures in early 2006.
- Cash Position: Cash and cash equivalents declined by $289 million, primarily due to significant capital expenditures ($459.6 million) and dividend payments ($52.7 million), despite strong operating cash flow.
- Segment Performance: The Uranium segment contributed $180.9 million in earnings before tax, while the Electricity segment (BPLP) contributed $143.1 million.
Outlook, Risks, and Unusual Items
- Cigar Lake Remediation: The company recorded a $20.6 million expense in 2006 related to water inflow at the Cigar Lake mine. A new remediation plan approved in March 2007 estimates additional development costs of $274 million, with expected remediation expenses of $32 million in 2007 and $9 million in 2008.
- Acquisitions: Cameco acquired 100% of Zircatec Precision Industries, Inc. in February 2006 for $108.9 million to expand nuclear fuel bundle fabrication capabilities.
- Legal Contingencies:
- British Energy (BE) Dispute: A consortium including Cameco is seeking damages from BE regarding steam generator defects at the Bruce Power facility. BE has counter-sued BPLP for $500 million. Management believes the action will not have a material financial impact.
- Centerra Gold Claim: A claim in Mongolia regarding the Gatsuurt property is pending; management believes the claim is without merit.
- Accounting Changes: The company adopted new standards for stock-based compensation (EIC 162) and is preparing for the implementation of new financial instrument standards effective January 1, 2007.
Investor Verification Checklist
- Uranium Price Sensitivity: Verify current spot and forward uranium prices against Cameco's hedged portfolio to assess future revenue stability.
- Cigar Lake Capital Requirements: Confirm the funding status and timeline for the $274 million additional development cost for the Cigar Lake project.
- Debt Maturity Profile: Review the schedule of long-term debt maturities, noting that only $7.9 million is due in 2007, with the bulk maturing after 2011.
- BPLP Lease Terms: Monitor the supplemental rent obligations payable to Ontario Power Generation (OPG), which are tied to electricity prices.
- US GAAP Reconciliation: Note that US GAAP net earnings for 2006 were $358.2 million, lower than Canadian GAAP earnings due to differences in pension accounting and hedge treatment.