Notes to Consolidated Financial Statements

For the years ended December 31, 2014 and 2013

  1. Cameco Corporation
  2. Significant accounting policies
  3. Accounting standards
  4. Determination of fair values
  5. Use of estimates and judgments
  6. Discontinued operation
  7. Accounts receivable
  8. Inventories
  9. Property, plant and equipment
  10. Goodwill and intangible assets
  11. Long-term receivables, investments and other
  12. Equity-accounted investees
  13. Accounts payable and accrued liabilities
  14. Short-term debt
  15. Long-term debt
  16. Other liabilities
  1. Provisions
  2. Share capital
  3. Employee benefit expense
  4. Finance costs
  5. Other income (expense)
  6. Income taxes
  7. Per share amounts
  8. Statements of cash flows
  9. Share-based compensation plans
  10. Pension and other post-retirement benefits
  11. Financial instruments and related risk management
  12. Capital management
  13. Segmented information
  14. Group entities
  15. Joint operations
  16. Related parties

10. Goodwill and intangible assets

  • A. Reconciliation of carrying amount

    At December 31, 2015 Goodwill Contracts Intellectual
    property    		 Patents Total
    Cost
    Beginning of year $102,526 $101,549 $118,819 $10,141 $333,035
    Effect of movements in exchange rates 19,788 19,599 — 1,957 41,344
    End of year 122,314 121,148 118,819 12,098 374,379
    Accumulated amortization
    Beginning of year — 88,978 40,992 1,963 131,933
    Amortization charge — 2,458 4,438 609 7,505
    Effect of movements in exchange rates — 17,373 — 438 17,811
    End of year — 108,809 45,430 3,010 157,249
    Net book value at December 31, 2015 $122,314 $12,339 $73,389 $9,088 $217,130
    At December 31, 2014 Goodwill Contracts Intellectual
    property    		 Patents Total
    Cost
    Beginning of year $93,998 $93,102  $118,819 $9,298 $315,217
    Effect of movements in exchange rates 8,528 8,447  — 843 17,818
    End of year 102,526 101,549  118,819 10,141 333,035
    Accumulated amortization
    Beginning of year — 82,960  36,940 1,286 121,186
    Amortization charge — (1,438) 4,052 531 3,145
    Effect of movements in exchange rates — 7,456  — 146 7,602
    End of year — 88,978  40,992 1,963 131,933
    Net book value at December 31, 2014 $102,526 $12,571  $77,827 $8,178 $201,102

  • B. Amortization

    The intangible asset values relate to intellectual property acquired with Cameco Fuel Manufacturing Inc. (CFM), patents acquired with UFP Investments LLC (UFP) and purchase and sales contracts acquired with NUKEM. The CFM intellectual property is being amortized on a unit-of-production basis over its remaining life. Amortization is allocated to the cost of inventory and is recognized in cost of products and services sold as inventory is sold. The patents acquired with UFP are being amortized to cost of products and services sold on a straight-line basis over their remaining life which expires in July 2029. The NUKEM purchase and sales contracts will be amortized to earnings over the remaining terms of the underlying contracts, which extend to 2022. Amortization of the purchase contracts is allocated to the cost of inventory and is included in cost of products and services sold as inventory is sold. Sales contracts are amortized to revenue. Approximately $3,517,000 of pre-tax earnings (in USD) relating to the amortization of the fair value allocated to the NUKEM contracts will be amortized in 2016 with the remaining balance being recognized fairly evenly each year through 2022.

  • C. Impairment test

    For the purpose of impairment testing, goodwill is attributable to NUKEM, which is considered a CGU.

    The recoverable amount of NUKEM was estimated based on a value in use calculation, which involved discounting the future cash flows expected to be generated from the continuing use of the CGU. The estimated recoverable amount of NUKEM exceeded its carrying amount by approximately $55,524,000 (US) and therefore no impairment loss was recognized.

    Five years of cash flows were included in the discounted cash flow model. Any cash flows expected to be generated beyond the initial five-year period were extrapolated using a terminal value growth rate. The projected cash flows included in the calculation were based upon NUKEM’s approved financial forecasts and strategic plan, which incorporate NUKEM’s current contract portfolio as well as management’s expectations regarding future business activity. The key assumptions used in the estimation of the value in use were as follows:

      2015
    Discount rate (pre-tax) 11.8%
    Discount rate (post-tax) 8.8%
    Terminal value growth rate 2.5%

    The discount rate was determined based on NUKEM’s internal weighted average cost of capital, adjusted for the marginal return a market participant would expect to earn on an investment in the entity. It represents a nominal, post-tax figure. The terminal value growth rate was determined based on management’s expected average annual long-term growth in the uranium industry. The rate represents a nominal figure and is consistent with forecast economic growth rates observed in the market.

    Other key assumptions include uranium price forecasts and perpetual cash flows. Uranium prices applied in the calculation were based on approved internal price forecasts, which reflect management’s experience and industry expertise. These prices are consistent with expected long-term prices observed in the market. Perpetual cash flows have been determined based on management’s expectation of future business activity.

    Cameco has validated the results of the value in use calculation by performing sensitivity tests on its key assumptions. Holding all other variables constant, the decreases in recoverable amount created by marginal changes in each of the key assumptions are as follows:

      Change in assumption Amount of decrease
    Discount rate 1% increase $37,222
    Terminal value growth rate 1% decrease 30,805
    Uranium prices $1/lb decrease 6,001
    Perpetual annual cash flow $1 million (US) decrease 11,131

    As a result of these tests, the Company believes that any reasonably possible changes in the key assumptions would not result in NUKEM’s carrying amount exceeding its recoverable amount.