EX-99.3

EX-99.3 4 d393589dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

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Cameco Corporation

2017 condensed consolidated interim financial statements

(unaudited)

October 26, 2017

Cameco Corporation

Consolidated statements of earnings


(Unaudited)		Three months ended						Nine months ended
($Cdn thousands, except per share amounts)	Note	Sep 30/17			Sep 30/16			Sep 30/17			Sep 30/16
Revenue from products and services		$	485,594		$	669,654		$	1,347,880		$	1,544,301

Cost of products and services sold			337,941			411,704			931,090			963,930
Depreciation and amortization			96,626			111,811			217,527			273,427

Cost of sales			434,567			523,515			1,148,617			1,237,357

Gross profit			51,027			146,139			199,263			306,944

Administration			40,132			38,689			124,562			151,461
Impairment charges	4		111,399			—			111,399			124,368
Exploration			8,080			9,643			24,478			36,543
Research and development			943			1,347			5,310			4,108
Other operating income	8		(9,338	)		(6,319	)		(15,178	)		(6,319	)
Loss on disposal of assets			1,207			439			5,780			9,033

Earnings (loss) from operations			(101,396	)		102,340			(57,088	)		(12,250	)
Finance costs	10		(27,217	)		(26,513	)		(82,964	)		(85,406	)
Gain (loss) on derivatives	16		21,727			(12,361	)		55,807			63,768
Finance income			1,341			669			3,516			3,176
Other income (expense)	11		(20,848	)		68,148			(32,020	)		49,614

Earnings (loss) before income taxes			(126,393	)		132,283			(112,749	)		18,902
Income tax expense (recovery)	12		(2,636	)		(10,407	)		30,740			(66,303	)

Net earnings (loss)			(123,757	)		142,690			(143,489	)		85,205

Net earnings (loss) attributable to:

Equity holders		$	(123,712	)	$	142,145		$	(143,316	)	$	82,801
Non-controlling interest			(45	)		545			(173	)		2,404

Net earnings (loss)		$	(123,757	)	$	142,690		$	(143,489	)	$	85,205

Earnings (loss) per common share attributable to equity holders:

Basic	13	$	(0.31	)	$	0.36		$	(0.36	)	$	0.21

Diluted	13	$	(0.31	)	$	0.36		$	(0.36	)	$	0.21

See accompanying notes to condensed consolidated interim financial statements.

Cameco Corporation

Consolidated statements of comprehensive income


(Unaudited)	Three months ended					Nine months ended
($Cdn thousands)	Sep 30/17			Sep 30/16		Sep 30/17			Sep 30/16
Net earnings (loss)	$	(123,757	)	$	142,690	$	(143,489	)	$	85,205

Other comprehensive income (loss), net of taxes

Items that are or may be reclassified to net earnings:
Exchange differences on translation of foreign operations		(38,396	)		26,904		(52,963	)		(69,547	)
Unrealized gains (losses) on available-for-sale assets¹		—			754		(1,102	)		2,489

Other comprehensive income (loss), net of taxes		(38,396	)		27,658		(54,065	)		(67,058	)

Total comprehensive income (loss)	$	(162,153	)	$	170,348		(197,554	)		18,147

Other comprehensive income (loss) attributable to:

Equity holders	$	(38,396	)	$	27,653	$	(54,063	)	$	(67,222	)
Non-controlling interest		—			5		(2	)		164

Other comprehensive income (loss)	$	(38,396	)	$	27,658	$	(54,065	)	$	(67,058	)

Total comprehensive income (loss) attributable to:

Equity holders	$	(162,108	)	$	169,798	$	(197,379	)	$	15,579
Non-controlling interest		(45	)		550		(175	)		2,568

Total comprehensive income (loss)	$	(162,153	)	$	170,348	$	(197,554	)	$	18,147

¹	Net of tax (Q3 2017 - $nil; Q3 2016 - $(67); 2017 - $399; 2016 - $(199))

See accompanying notes to condensed consolidated interim financial statements.

Cameco Corporation

Consolidated statements of financial position


(Unaudited)		As at
($Cdn thousands)	Note	Sep 30/17			Dec 31/16
Assets
Current assets
Cash and cash equivalents		$	351,844		$	320,278
Accounts receivable			184,600			242,482
Current tax assets			24,745			11,552
Inventories	5		1,119,480			1,287,939
Supplies and prepaid expenses			159,495			169,084
Current portion of long-term receivables, investments and other	6		26,603			10,498

Total current assets			1,866,767			2,041,833

Property, plant and equipment			4,413,192			4,655,586
Goodwill and intangible assets	4		78,711			203,310
Long-term receivables, investments and other	6		540,726			512,484
Deferred tax assets			811,149			835,985

Total non-current assets			5,843,778			6,207,365

Total assets		$	7,710,545		$	8,249,198

Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities			209,150			312,900
Current tax liabilities			6,339			36,413
Dividends payable			39,579			39,579
Current portion of other liabilities	7		44,495			60,744
Current portion of provisions	8		46,267			19,619

Total current liabilities			345,830			469,255

Long-term debt			1,494,175			1,493,327
Other liabilities	7		138,450			122,988
Provisions	8		768,084			889,163
Deferred tax liabilities			15,892			15,937

Total non-current liabilities			2,416,601			2,521,415

Shareholders’ equity
Share capital	9		1,862,652			1,862,646
Contributed surplus			222,065			216,213
Retained earnings			2,757,838			3,019,872
Other components of equity			105,577			159,640

Total shareholders’ equity attributable to equity holders			4,948,132			5,258,371
Non-controlling interest			(18	)		157

Total shareholders’ equity			4,948,114			5,258,528

Total liabilities and shareholders’ equity		$	7,710,545		$	8,249,198

Commitments and contingencies [notes 8, 12]

See accompanying notes to condensed consolidated interim financial statements.

Cameco Corporation

Consolidated statements of changes in equity


	Attributable to equity holders
(Unaudited) ($Cdn thousands)	Share capital		Contributed surplus			Retained earnings			Foreign currency translation			Available- for-sale assets			Total			Non- controlling interest			Total equity
Balance at January 1, 2017	$	1,862,646	$	216,213		$	3,019,872		$	156,411		$	3,229		$	5,258,371		$	157		$	5,258,528

Net loss		—		—			(143,316	)		—			—			(143,316	)		(173	)		(143,489	)
Total comprehensive loss		—		—			—			(52,961	)		(1,102	)		(54,063	)		(2	)		(54,065	)

Total comprehensive loss for the period		—		—			(143,316	)		(52,961	)		(1,102	)		(197,379	)		(175	)		(197,554	)

Share-based compensation		—		11,213			—			—			—			11,213			—			11,213
Stock options exercised		6		(1	)		—			—			—			5			—			5
Restricted and performance share units released		—		(5,360	)		—			—			—			(5,360	)		—			(5,360	)
Dividends		—		—			(118,718	)		—			—			(118,718	)		—			(118,718	)

Balance at September 30, 2017	$	1,862,652	$	222,065		$	2,757,838		$	103,450		$	2,127		$	4,948,132		$	(18	)	$	4,948,114

Balance at January 1, 2016	$	1,862,646	$	209,115		$	3,241,902		$	233,918		$	(561	)	$	5,547,020		$	(1,741	)	$	5,545,279

Net earnings		—		—			82,801			—			—			82,801			2,404			85,205
Other comprehensive income
(loss) for the period		—		—			—			(69,711	)		2,489			(67,222	)		164			(67,058	)

Total comprehensive income (loss) for the period		—		—			82,801			(69,711	)		2,489			15,579			2,568			18,147

Share-based compensation		—		10,746			—			—			—			10,746			—			10,746
Restricted and performance share units released		—		(7,002	)		—			—			—			(7,002	)		—			(7,002	)
Dividends		—		—			(118,730	)		—			—			(118,730	)		—			(118,730	)

Balance at September 30, 2016	$	1,862,646	$	212,859		$	3,205,973		$	164,207		$	1,928		$	5,447,613		$	827		$	5,448,440

See accompanying notes to condensed consolidated interim financial statements.

Cameco Corporation

Consolidated statements of cash flows


(Unaudited)			Three months ended						Nine months ended
($Cdn thousands)	Note		Sep 30/17			Sep 30/16			Sep 30/17			Sep 30/16
Operating activities
Net earnings (loss)			$	(123,757	)	$	142,690		$	(143,489	)	$	85,205
Adjustments for:
Depreciation and amortization				96,626			111,811			217,527			273,427
Deferred charges				1,376			(6,777	)		868			(99,385	)
Unrealized loss (gain) on derivatives				(22,840	)		2,736			(60,683	)		(126,455	)
Share-based compensation		15		2,924			2,514			11,213			10,746
Loss on disposal of assets				1,207			439			5,780			9,033
Finance costs		10		27,217			26,513			82,964			85,406
Finance income				(1,341	)		(669	)		(3,516	)		(3,176	)
Impairment charges		4		111,399			—			111,399			124,368
Other operating income		8		(9,338	)		(6,319	)		(15,178	)		(6,319	)
Other expense (income)		11		20,849			(9,117	)		32,008			9,433
Income tax expense (recovery)		12		(2,636	)		(10,407	)		30,740			(66,303	)
Interest received				2,081			32			10,293			1,340
Income taxes paid				(42,667	)		(6,325	)		(84,925	)		(97,091	)
Other operating items		14		92,691			137,822			81,062			(142,942	)

Net cash provided by operations				153,791			384,943			276,063			57,287

Investing activities
Additions to property, plant and equipment				(35,346	)		(54,253	)		(88,665	)		(167,497	)
Decrease (increase) in long-term receivables, investments and other				4,937			(836	)		13,406			(2,111	)
Proceeds from sale of property, plant and equipment				254			33			970			1,877

Net cash used in investing				(30,155	)		(55,056	)		(74,289	)		(167,731	)

Financing activities
Increase (decrease) in debt				—			(208,757	)		—			25,988
Interest paid				(14,254	)		(14,198	)		(48,949	)		(49,805	)
Proceeds from issuance of shares, stock option plan				—			—			4			—
Dividends paid				(39,580	)		(39,579	)		(118,718	)		(118,730	)

Net cash used in financing				(53,834	)		(262,534	)		(167,663	)		(142,547	)

Increase (decrease) in cash and cash equivalents, during the period				69,802			67,353			34,111			(252,991	)
Exchange rate changes on foreign currency cash balances				(651	)		480			(2,545	)		(6,253	)
Cash and cash equivalents, beginning of period				282,693			131,527			320,278			458,604

Cash and cash equivalents, end of period			$	351,844		$	199,360		$	351,844		$	199,360

Cash and cash equivalents is comprised of:
Cash										60,292			63,741
Cash equivalents										291,552			135,619

Cash and cash equivalents									$	351,844		$	199,360

See accompanying notes to condensed consolidated interim financial statements.

Cameco Corporation

Notes to condensed consolidated interim financial statements

(Unaudited)

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

1.	Cameco Corporation

Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The condensed consolidated interim financial statements as at and for the period ended September 30, 2017 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Company’s interests in associates and joint arrangements. The Company is primarily engaged in the exploration for and the development, mining, refining, conversion, fabrication and trading of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries.

2.	Significant accounting policies

A.	Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with Cameco’s annual consolidated financial statements as at and for the year ended December 31, 2016.

These condensed consolidated interim financial statements were authorized for issuance by the Company’s board of directors on October 26, 2017.

B.	Basis of presentation

These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars, unless otherwise noted. Amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted.

The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date:


Derivative financial instruments		Fair value
Available-for-sale financial assets		Fair value
Liabilities for cash-settled share-based payment arrangements		Fair value
Net defined benefit liability		Fair value of plan assets less the present value of the defined benefit obligation

The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (IFRS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2016.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5 of the December 31, 2016 consolidated financial statements.

3.	Accounting standards

New standards and interpretations not yet adopted

A number of new standards and amendments to existing standards are not yet effective for the period ended September 30, 2017 and have not been applied in preparing these condensed consolidated interim financial statements. Cameco does not intend to early adopt any of the following standards or amendments to existing standards, unless otherwise noted.

i.	Revenue

In May 2014, the International Accounting Standards Board (IASB) issued IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 is effective for periods beginning on or after January 1, 2018 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. Cameco continues to assess the impact the application of IFRS 15 will have on its consolidated financial statements. The assessment to date has primarily involved reviewing our sales contracts to determine if any performance obligations exist that will need to be separately identified that may affect the timing of when revenue will be recognized under IFRS 15. Based on our assessments completed to date, Cameco has not identified any material impacts on our existing revenue recognition practices from the adoption of the new standard.

ii.

Financial instruments

In July 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9). IFRS 9 replaces the existing guidance in IAS 39, Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 includes revised guidance on the classification and measurement of financial assets, a new expected credit loss model for calculating impairment on financial assets and new hedge accounting requirements. It also carries forward, from IAS 39, guidance on recognition and derecognition of financial instruments.

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption of the new standard permitted. Cameco does not apply hedge accounting and does not currently intend to apply hedge accounting upon adoption of IFRS 9. Based on our assessment completed to date, we do not expect adoption of the standard to have a material impact on the financial statements, however we do expect to have additional disclosures.

iii.

Leases

In January 2016, the IASB issued IFRS 16, Leases (IFRS 16). IFRS 16 is effective for periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 eliminates the current dual model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. The extent of the impact of adoption of IFRS 16 has not yet been determined.

4.	Impairment

(a) During the quarter, Cameco restructured its global marketing organization in response to the changing business environment. The restructuring significantly impacts the marketing activities historically performed by NUKEM. In accordance with the provisions of IAS 36, Impairment of Assets, Cameco considered this to be an indicator that the assets of the cash generating unit could potentially be impaired and accordingly, we were required to estimate the recoverable amount of these assets.

The recoverable amount of NUKEM was estimated based on a fair value less costs to sell calculation and was concluded to be equal to the carrying value of its inventory and existing contracts. A change in the previous assumption, that there would be cash flows generated beyond a five-year period, resulted in the elimination of the terminal value. Accordingly, an impairment charge of $111,399,000 ($88,377,000 (US)) was recorded, representing the full carrying value of NUKEM goodwill.

(b) In the second quarter of 2016, production was suspended at our Rabbit Lake operation. An impairment charge of $124,368,000 was recognized relating to our Rabbit Lake operation in northern Saskatchewan, which is part of the uranium segment. The charge was for the full carrying value of this cash generating unit. The recoverable amount of the mine and mill was based on a fair value less costs to sell model, which incorporated the future cash flows, including care and maintenance costs, expected to be derived from the operation. It was categorized as a non-recurring level 3 fair value measurement.

The discount rate used in the fair value less costs to sell calculation was 8% and was determined based on a market participant’s incremental borrowing cost, adjusted for the marginal return that the participant would expect to use on an investment in the mine and mill. Other key assumptions included uranium price forecasts and operating and capital cost forecasts. Uranium prices applied in the calculation were based on approved internal price forecasts, which reflect management’s expectation of prices that a market participant would use. Operating and capital cost forecasts were determined based on management’s internal cost estimates.

5.	Inventories


	Sep 30/17		Dec 31/16
Uranium
Concentrate	$	871,801	$	989,202
Broken ore		35,245		45,581

		907,046		1,034,783
NUKEM		115,481		141,040
Fuel services		96,953		112,116

Total	$	1,119,480	$	1,287,939

Cameco expensed $400,962,000 of inventory as cost of sales during the third quarter of 2017 (2016 - $458,864,000). For the nine months ended September 30, 2017, Cameco expensed $1,059,824,000 of inventory as cost of sales (2016 - $1,072,309,000). Included in cost of sales for the period ended September 30, 2017, is an $11,809,000 net write-down of NUKEM inventory to reflect net realizable value due to reduced market prices (September 30, 2016 - $25,752,000).

NUKEM enters into financing arrangements where future receivables arising from certain sales contracts are sold to financial institutions in exchange for cash. These arrangements require NUKEM to satisfy its delivery obligations under the sales contracts, which are recognized as deferred sales (note 7). In addition, NUKEM is required to pledge the underlying inventory as security against these performance obligations. As of September 30, 2017, NUKEM had $4,540,000 ($3,637,000 (US)) of inventory pledged as security under financing arrangements (December 31, 2016 - $4,884,000 ($3,637,000 (US))).

6.	Long-term receivables, investments and other


	Sep 30/17			Dec 31/16
Investments in equity securities [note 16]	$	13,315		$	14,807
Derivatives [note 16]		47,815			10,612
Advances receivable from JV Inkai LLP [note 18]		61,968			90,095
Investment tax credits		92,846			93,920
Amounts receivable related to tax dispute [note 12]		303,222			264,042
Other		48,163			49,506

		567,329			522,982
Less current portion		(26,603	)		(10,498	)

Net	$	540,726		$	512,484

7.	Other liabilities


	Sep 30/17			Dec 31/16
Deferred sales	$	30,248		$	29,423
Derivatives [note 16]		32,822			58,885
Accrued pension and post-retirement benefit liability		66,477			69,699
Other		53,398			25,725

		182,945			183,732
Less current portion		(44,495	)		(60,744	)

Net	$	138,450		$	122,988

Deferred sales includes $5,710,000 ($4,575,000 (US)) of performance obligations relating to financing arrangements entered into by NUKEM (December 31, 2016 - $6,143,000 ($4,575,000 (US))) (note 5).

8.	Provisions


	Reclamation			Waste disposal			Total
Beginning of year	$	893,617		$	15,165		$	908,782
Changes in estimates and discount rates
Capitalized in property, plant, and equipment		(60,903	)		—			(60,903	)
Recognized in earnings		(15,178	)		(1,901	)		(17,079	)
Provisions used during the period		(10,392	)		(1,102	)		(11,494	)
Unwinding of discount		16,581			104			16,685
Impact of foreign exchange		(21,640	)		—			(21,640	)

End of period	$	802,085		$	12,266		$	814,351

Current		44,605			1,662			46,267
Non-current		757,480			10,604			768,084

	$	802,085		$	12,266		$	814,351

9.	Share capital

At September 30, 2017, there were 395,792,732 common shares outstanding. Options in respect of 8,415,524 shares are outstanding under the stock option plan and are exercisable up to 2025. For the quarter ended September 30, 2017, there were no options that were exercised resulting in the issuance of shares (2016 - nil). For the nine months ended September 30, 2017, 210 options were exercised that resulted in the issuance of shares (2016 - nil).

10.

Finance costs


	Three months ended					Nine months ended
	Sep 30/17			Sep 30/16		Sep 30/17			Sep 30/16
Interest on long-term debt	$	18,365		$	17,671	$	54,761		$	55,658
Unwinding of discount on provisions		5,026			4,715		16,685			15,866
Other charges		3,826			3,769		11,518			13,003
Interest on short-term debt		—			358		—			879

Total	$	27,217		$	26,513	$	82,964		$	85,406

11. Other income (expense)

	Three months ended					Nine months ended
	Sep 30/17			Sep 30/16		Sep 30/17			Sep 30/16
Foreign exchange gains (losses)	$	(20,850	)	$	9,119	$	(32,009	)	$	(16,465	)
Contract settlements		—			59,027		—			59,027
Gain on change in investment accounting		—			—		—			7,032
Other		2			2		(11	)		20

Total	$	(20,848	)	$	68,148	$	(32,020	)	$	49,614

In the third quarter of 2016, Cameco agreed to terminate two long-term supply contracts with two of its utility customers that were effective for the years 2016 through 2020 and 2016 through 2021. The resulting gain on contract settlements was $59,027,000.

In the first quarter of 2016, Cameco’s share in one of its associates decreased such that equity accounting was no longer appropriate. As a result, the difference between its carrying value and fair value was recognized in other income. As an available-for-sale investment, future changes in fair value are being recognized in other comprehensive income.

12.

Income taxes


	Three months ended						Nine months ended
	Sep 30/17			Sep 30/16			Sep 30/17			Sep 30/16
Earnings (loss) before income taxes
Canada	$	18,401		$	(88,224	)	$	93,587		$	(335,675	)
Foreign		(144,794	)		220,507			(206,336	)		354,577

	$	(126,393	)	$	132,283		$	(112,749	)	$	18,902

Current income taxes (recovery)
Canada	$	1,445		$	160		$	3,545		$	2,134
Foreign		(9,471	)		20,236			(4,585	)		33,373

	$	(8,026	)	$	20,396		$	(1,040	)	$	35,507
Deferred income taxes (recovery)
Canada	$	2,007		$	(19,226	)	$	37,811		$	(87,024	)
Foreign		3,383			(11,577	)		(6,031	)		(14,786	)

	$	5,390		$	(30,803	)	$	31,780		$	(101,810	)

Income tax expense (recovery)	$	(2,636	)	$	(10,407	)	$	30,740		$	(66,303	)

Cameco has recorded $811,149,000 of deferred tax assets (December 31, 2016 - $835,985,000). The realization of these deferred tax assets is dependent upon the generation of future taxable income in certain jurisdictions during the periods in which the Company’s temporary tax differences are available. The Company considers whether it is probable that all or a portion of the deferred tax assets will not be realized. In making this assessment, management considers all available evidence, including recent financial operations, projected future taxable income and tax planning strategies. Based on projections of future taxable income over the periods in which the deferred tax assets are available, realization of these deferred tax assets is probable and consequently the deferred tax assets have been recorded.

Canada

In 2008, as part of the ongoing annual audits of Cameco’s Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2011, which in aggregate have increased Cameco’s income for Canadian tax purposes by approximately $4,100,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $370,700,000. Cameco believes it is likely that CRA will reassess Cameco’s tax returns for subsequent years on a similar basis and that these will require Cameco to make future remittances or provide security on receipt of the reassessments.

Using the methodology we believe that CRA will continue to apply and including the $4,100,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $8,100,000,000 for the years 2003 through 2016, which would increase Cameco’s income for Canadian tax purposes and result in a related tax expense of approximately $2,400,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2011. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,750,000,000 and $1,950,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. While in dispute, we would be responsible for remitting or otherwise securing 50% of the cash taxes and transfer pricing penalties (between $875,000,000 and $975,000,000), plus related interest and instalment penalties assessed, which would be material to Cameco.

Under Canadian federal and provincial tax rules, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions. Recently, the CRA disallowed the use of any loss carry-backs to be applied to any transfer pricing adjustment, starting with the 2008 tax year. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $303,222,000 already paid as at September 30, 2017 (December 31, 2016 - $264,042,000) (note 6). In addition to the cash remitted, we have provided $421,000,000 in letters of credit to secure 50% of the cash taxes and related interest.

The trial for the 2003, 2005 and 2006 reassessments concluded on September 13, 2017. We expect to have a Tax Court decision within six to 18 months.

Having regard to advice from its external advisors, Cameco’s opinion is that CRA’s position is incorrect and Cameco is contesting CRA’s position and expects to recover any amounts remitted or secured as a result of the reassessments. However, to reflect the uncertainties of CRA’s appeals process and litigation, Cameco has recorded a cumulative tax provision related to this matter for the years 2003 through the current period in the amount of $56,000,000. While the resolution of this matter may result in liabilities that are higher or lower than the reserve, management believes that the ultimate resolution will not be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Cameco’s financial position, results of operations and cash flows in the year(s) of resolution.

Further to Cameco’s decision to contest CRA’s reassessments, Cameco is pursuing its appeal rights under Canadian federal and provincial tax rules.

United States

We have now settled our IRS dispute related to the 2009 through 2012 tax years, and in the third quarter we paid $198,000 (US) comprised of $122,000 (US) taxes owing plus interest.

13.

Per share amounts

Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2017 was 395,792,670 (2016 - 395,792,522).


	Three months ended					Nine months ended
	Sep 30/17			Sep 30/16		Sep 30/17			Sep 30/16
Basic earnings (loss) per share computation
Net earnings (loss) attributable to equity holders	$	(123,712	)	$	142,145	$	(143,316	)	$	82,801
Weighted average common shares outstanding		395,793			395,793		395,793			395,793

Basic earnings (loss) per common share	$	(0.31	)	$	0.36	$	(0.36	)	$	0.21

Diluted earnings (loss) per share computation
Net earnings (loss) attributable to equity holders	$	(123,712	)	$	142,145	$	(143,316	)	$	82,801
Weighted average common shares outstanding		395,793			395,793		395,793			395,793
Dilutive effect of stock options		—			—		—			—

Weighted average common shares outstanding, assuming dilution		395,793			395,793		395,793			395,793

Diluted earnings (loss) per common share	$	(0.31	)	$	0.36	$	(0.36	)	$	0.21

14.

Statements of cash flows


	Three months ended						Nine months ended
	Sep 30/17			Sep 30/16			Sep 30/17			Sep 30/16
Changes in non-cash working capital:
Accounts receivable	$	(75,753	)	$	8,479		$	51,748		$	127,701
Inventories		150,297			144,213			136,222			(150,140	)
Supplies and prepaid expenses		2,662			11,250			5,463			(4,179	)
Accounts payable and accrued liabilities		4,619			(31,012	)		(115,660	)		(113,175	)
Reclamation payments		(5,646	)		(4,407	)		(11,494	)		(8,326	)
Other		16,512			9,299			14,783			5,177

Other operating items	$	92,691		$	137,822		$	81,062		$	(142,942	)

15.

Share-based compensation plans

A.	Stock option plan

The Company has established a stock option plan under which options to purchase common shares may be granted to employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the Toronto Stock Exchange (TSX) for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options carry vesting periods of one to three years, and expire eight years from the date granted.

The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198 of which 27,870,289 shares have been issued.

B.	Executive performance share unit (PSU)

The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market or cash with an equivalent market value, at the board’s discretion, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. Vesting of PSUs at the end of the three-year period will be based on total shareholder return over the three years, Cameco’s ability to meet its annual operating targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period. As of September 30, 2017, the total number of PSUs held by the participants, after adjusting for forfeitures on retirement, was 1,070,997 (December 31, 2016 - 892,895).

C.	Restricted share unit (RSU)

The Company has established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market or cash with an equivalent market value, at the board’s discretion. The RSUs carry vesting periods of one to three years, and the final value of the units will be based on the value of Cameco common shares at the end of the vesting periods. As of September 30, 2017, the total number of RSUs held by the participants was 480,573 (December 31, 2016 - 557,957).

Cameco records compensation expense under its equity-settled plans with an offsetting credit to contributed surplus, to reflect the estimated fair value of units granted to employees. During the period, the Company recognized the following expenses under these plans:


	Three months ended				Nine months ended
	Sep 30/17		Sep 30/16		Sep 30/17		Sep 30/16
Stock option plan	$	393	$	288	$	4,545	$	3,741
Performance share unit plan		1,730		1,623		4,634		4,017
Restricted share unit plan		801		603		2,034		2,988

	$	2,924	$	2,514	$	11,213	$	10,746

Fair value measurement of equity-settled plans

The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of options granted under the stock option plan was measured based on the Black-Scholes option-pricing model. The fair value of RSUs granted was determined based on their intrinsic value on the date of grant. Expected volatility was estimated by considering historic average share price volatility.

The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:


	Stock
	option plan			PSU			RSU
Number of options granted		1,373,040			470,120			279,892
Average strike price	$	14.70			—		$	14.71
Expected dividend	$	0.40			—			—
Expected volatility		34	%		36	%		—
Risk-free interest rate		1.1	%		0.9	%		—
Expected life of option		4.7 years			3 years			—
Expected forfeitures		7	%		9	%		13	%
Weighted average grant date fair values	$	3.34		$	14.72		$	14.71

In addition to these inputs, other features of the PSU grant were incorporated into the measurement of fair value. The market condition based on total shareholder return was incorporated by utilizing a Monte Carlo simulation. The non-market criteria relating to realized selling prices and operating targets have been incorporated into the valuation at grant date by reviewing prior history and corporate budgets.

16.

Financial instruments and related risk management

A.	Fair value hierarchy

The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability.

All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities:

Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities.

Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following tables summarize the carrying amounts and fair values of Cameco’s financial instruments that are measured at fair value, including their levels in the fair value hierarchy:

As at September 30, 2017



				Fair value
	Carrying value			Level 1		Level 2			Total
Derivative assets [note 6]
Foreign currency contracts	$	47,217		$	—	$	47,217		$	47,217
Interest rate contracts		598			—		598			598
Investments in equity securities [note 6]		13,315			13,315		—			13,315
Derivative liabilities [note 7]
Foreign currency contracts		(4,502	)		—		(4,502	)		(4,502	)
Interest rate contracts		(348	)		—		(348	)		(348	)
Uranium contracts		(27,972	)		—		(27,972	)		(27,972	)
Long-term debt		(1,494,175	)		—		(1,660,202	)		(1,660,202	)

Net	$	(1,465,867	)	$	13,315	$	(1,645,209	)	$	(1,631,894	)

As at December 31, 2016


				Fair value
	Carrying value			Level 1		Level 2			Total
Derivative assets [note 6]
Foreign currency contracts	$	4,065		$	—	$	4,065		$	4,065
Interest rate contracts		6,547			—		6,547			6,547
Investments in equity securities [note 6]		14,807			14,807		—			14,807
Derivative liabilities [note 7]
Foreign currency contracts		(29,231	)		—		(29,231	)		(29,231	)
Uranium contracts		(29,654	)		—		(29,654	)		(29,654	)
Long-term debt		(1,493,327	)		—		(1,721,805	)		(1,721,805	)

Net	$	(1,526,793	)	$	14,807	$	(1,770,078	)	$	(1,755,271	)

The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value.

There were no transfers between level 1 and level 2 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date.

B.	Financial instruments measured at fair value

Cameco measures its derivative financial instruments, material investments in equity securities and long-term debt at fair value. Investments in publicly held equity securities are classified as a recurring level 1 fair value measurement while derivative financial instruments and long-term debt are classified as recurring level 2 fair value measurements.

The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date. The fair value of Cameco’s long-term debt is determined using quoted market yields as of the reporting date, which ranged from 1.5% to 2.5% (2016 - 0.8% to 2.3%).

Foreign currency derivatives consist of foreign currency forward contracts, options and swaps. The fair value of foreign currency options is measured based on the Black Scholes option-pricing model. The fair value of foreign currency forward contracts and swaps is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date.

Interest rate derivatives consist of interest rate swap contracts. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves.

Uranium contract derivatives consist of written options and price swaps. The fair value of uranium options is measured based on the Black Scholes option-pricing model. The fair value of uranium price swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed purchases or sales under contracted prices, and floating purchases or sales based on Numerco forward uranium price curves.

Where applicable, the fair value of the derivatives reflects the credit risk of the instrument and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date.

C.	Other financial instruments

The carrying value of Cameco’s cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates its fair value as a result of the short-term nature of the instruments.

D.	Derivatives

The following table summarizes the fair value of derivatives and classification on the consolidated statements of financial position:


	Sep 30/17			Dec 31/16
Non-hedge derivatives:
Foreign currency contracts	$	42,715		$	(25,166	)
Interest rate contracts		250			6,547
Uranium contracts		(27,972	)		(29,654	)

Net	$	14,993		$	(48,273	)

Classification:
Current portion of long-term receivables, investments and other [note 6]	$	26,320		$	4,119
Long-term receivables, investments and other [note 6]		21,495			6,493
Current portion of other liabilities [note 7]		(8,712	)		(24,966	)
Other liabilities [note 7]		(24,110	)		(33,919	)

Net	$	14,993		$	(48,273	)

The following table summarizes the different components of the gain (loss) on derivatives included in net earnings (loss):


	Three months ended						Nine months ended
	Sep 30/17			Sep 30/16			Sep 30/17			Sep 30/16
Non-hedge derivatives
Foreign currency contracts	$	24,383		$	(8,945	)	$	61,649		$	87,106
Interest rate contracts		(2,361	)		(108	)		(3,613	)		1,724
Uranium contracts		(295	)		(3,308	)		(2,229	)		(25,062	)

Net	$	21,727		$	(12,361	)	$	55,807		$	63,768

17.

Segmented information

Cameco has three reportable segments: uranium, fuel services and NUKEM. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The fuel services segment involves the refining, conversion and fabrication of uranium concentrate and the purchase and sale of conversion services. The NUKEM segment acts as a market intermediary between uranium producers and nuclear-electric utilities.

Cameco’s reportable segments are strategic business units with different products, processes and marketing strategies.

Accounting policies used in each segment are consistent with the policies outlined in the summary of significant accounting policies. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arm’s length basis, are eliminated on consolidation and are reflected in the “other” column.

Business segments

For the three months ended September 30, 2017


	Uranium			Fuel services		NUKEM			Other			Total
Revenue	$	384,759		$	69,039	$	31,587		$	209		$	485,594
Expenses
Cost of products and services sold		250,508			55,039		32,457			(63	)		337,941
Depreciation and amortization		83,161			10,387		442			2,636			96,626

Cost of sales		333,669			65,426		32,899			2,573			434,567

Gross profit (loss)		51,090			3,613		(1,312	)		(2,364	)		51,027
Administration		—			—		5,626			34,506			40,132
Impairment charge		—			—		111,399			—			111,399
Exploration		8,080			—		—			—			8,080
Research and development		—			—		—			943			943
Other operating income		(9,338	)		—		—			—			(9,338	)
Loss on disposal of assets		1,135			67		5			—			1,207
Finance costs		—			—		478			26,739			27,217
Loss (gain) on derivatives		—			—		314			(22,041	)		(21,727	)
Finance income		—			—		—			(1,341	)		(1,341	)
Other expense (income)		—			—		(105	)		20,953			20,848

Earnings (loss) before income taxes		51,213			3,546		(119,029	)		(62,123	)		(126,393	)
Income tax recovery													(2,636	)

Net loss												$	(123,757	)

For the three months ended September 30, 2016


	Uranium			Fuel services			NUKEM			Other			Total
Revenue	$	526,230		$	77,289		$	66,569		$	(434	)	$	669,654
Expenses
Cost of products and services sold		285,724			56,255			70,525			(800	)		411,704
Depreciation and amortization		87,612			8,889			11,735			3,575			111,811

Cost of sales		373,336			65,144			82,260			2,775			523,515

Gross profit (loss)		152,894			12,145			(15,691	)		(3,209	)		146,139
Administration		—			—			2,774			35,915			38,689
Exploration		9,643			—			—			—			9,643
Research and development		—			—			—			1,347			1,347
Other operating income		(6,319	)		—			—			—			(6,319	)
Loss on disposal of assets		439			—			—			—			439
Finance costs		—			—			(68	)		26,581			26,513
Loss (gain) on derivatives		—			—			(3,113	)		15,474			12,361
Finance income		—			—			101			(770	)		(669	)
Other expense (income)		(48,655	)		(10,372	)		386			(9,507	)		(68,148	)

Earnings (loss) before income taxes		197,786			22,517			(15,771	)		(72,249	)		132,283
Income tax recovery														(10,407	)

Net earnings													$	142,690

For the nine months ended September 30, 2017


	Uranium			Fuel services			NUKEM			Other			Total
Revenue	$	943,096		$	205,935		$	197,673		$	1,176		$	1,347,880

Expenses
Cost of products and services sold		591,449			138,138			202,219			(716	)		931,090
Depreciation and amortization		172,159			25,764			11,302			8,302			217,527

Cost of sales		763,608			163,902			213,521			7,586			1,148,617

Gross profit (loss)		179,488			42,033			(15,848	)		(6,410	)		199,263

Administration		—			—			11,588			112,974			124,562
Impairment charge		—			—			111,399			—			111,399
Exploration		24,478			—			—			—			24,478
Research and development		—			—			—			5,310			5,310
Other operating income		(15,178	)		—			—			—			(15,178	)
Loss on disposal of assets		5,700			71			9			—			5,780
Finance costs		—			—			1,172			81,792			82,964
Loss (gain) on derivatives		—			—			1,187			(56,994	)		(55,807	)
Finance income		—			—			(23	)		(3,493	)		(3,516	)
Other expense (income)		(8	)		—			1,778			30,250			32,020

Earnings (loss) before income taxes		164,496			41,962			(142,958	)		(176,249	)		(112,749	)
Income tax expense														30,740

Net loss													$	(143,489	)

For the nine months ended September 30, 2016

	Uranium			Fuel services			NUKEM			Other			Total
Revenue	$	1,128,898		$	217,384		$	197,518		$	501		$	1,544,301

Expenses
Cost of products and services sold		654,592			150,599			158,984			(245	)		963,930
Depreciation and amortization		173,096			22,759			64,609			12,963			273,427

Cost of sales		827,688			173,358			223,593			12,718			1,237,357


Gross profit (loss)		301,210			44,026			(26,075	)		(12,217	)		306,944
Administration		—			—			16,099			135,362			151,461
Impairment charge		124,368			—			—			—			124,368
Exploration		36,543			—			—			—			36,543
Research and development		—			—			—			4,108			4,108
Other operating income		(6,319	)		—			—			—			(6,319	)
Loss on disposal of assets		9,005			—			28			—			9,033
Finance costs		—			—			3,911			81,495			85,406
Gain on derivatives		—			—			(3,725	)		(60,043	)		(63,768	)
Finance income		—			—			(228	)		(2,948	)		(3,176	)
Other expense (income)		(55,687	)		(10,372	)		915			15,530			(49,614	)

Earnings (loss) before income taxes		193,300			54,398			(43,075	)		(185,721	)		18,902
Income tax recovery														(66,303	)

Net earnings													$	85,205

18.

Related parties

The shares of Cameco are widely held and no shareholder, resident in Canada, is allowed to own more than 25% of the Company’s outstanding common shares, either individually or together with associates. A non-resident of Canada is not allowed to own more than 15%.

Related party transactions

Through an unsecured shareholder loan, Cameco has agreed to fund Inkai’s costs related to the evaluation and development of block 3. The limit of the loan facility is $175,000,000 (US) and advances under this facility bear interest at a rate of LIBOR plus 2%. At September 30, 2017, $124,134,000 (US) of principal and interest was outstanding (December 31, 2016 - $167,750,000 (US)).

Cameco’s share of the outstanding principal and interest was $61,968,000 at September 30, 2017 (December 31, 2016 - $90,095,000) (note 6). For the quarter ended September 30, 2017, Cameco recorded interest income of $554,000 relating to this balance (2016 - $524,000). For the nine month period ended September 30, 2017, interest income was $1,685,000 (2016 - $1,569,000).