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Cameco reports fourth quarter and 2012 financial results


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© Marketwire 2013
2013-02-09 01:27:13 -

SASKATOON, SASKATCHEWAN -- (Marketwire) -- 02/09/13 --


ALL AMOUNTS ARE STATED IN CDN $ (UNLESS NOTED)


--  achieved annual sales targets-record fourth quarter deliveries 
--  exceeded annual production target 
--  recorded a $168 million write-down on Kintyre project 
--  solid progress at Cigar Lake-on track for first production in 2013 
--  continued to grow the company by completing three key acquisitions 



Cameco (TSX:CCO) (NYSE:CCJ) today reported its consolidated financial and operating results for the fourth quarter and year ended December 31, 2012.


"2012 was a busy and challenging year; but we again delivered solid results," said Tim Gitzel, president and CEO. "Our focus in 2013 will be on execution and reducing costs without compromising on our values.


"We are confident in a positive future for our industry based on its fundamentals. On the demand side, new reactor construction continues in China and there are strong indications that additional plants will be coming back on line in Japan. On the supply side, about 24 million pounds of annual uranium supply will be removed from the market after 2013 with the end of the Russian highly enriched uranium agreement. We are also seeing new mine projects delayed or cancelled due to the prevailing uncertainty in our markets. Cameco remains committed to nuclear energy. We see a great opportunity to grow our business and build value for shareholders and are working to realize it."


HIGHLIGHTS                                      THREE MONTHS ENDED          
($ MILLIONS EXCEPT PER SHARE AMOUNTS)                  DECEMBER 31          
                                              ------------------------------
                                                    2012      2011  CHANGE  
----------------------------------------------------------------------------
Revenue                                              958       971      (1)%
----------------------------------------------------------------------------
Gross profit                                         307       353     (13)%
----------------------------------------------------------------------------
Net earnings attributable to equity holders           45       265     (83)%
----------------------------------------------------------------------------
 $ per common share (basic and diluted)             0.11      0.67     (84)%
----------------------------------------------------------------------------
Adjusted net earnings (non-IFRS, see Non-IFRS                               
 measures)                                           237       249      (5)%
----------------------------------------------------------------------------
 $ per common share (adjusted and diluted)          0.60      0.63      (5)%
----------------------------------------------------------------------------
Cash provided by operations (after working                                  
 capital changes)                                    283       258      10% 
----------------------------------------------------------------------------
Average        Uranium                                                      
 realized                      $US/lb              49.97     52.09      (4)%
 prices                                                                     
                                                                            
                               $Cdn/lb             49.37     53.08      (7)%
               -------------------------------------------------------------
               Fuel services   $Cdn/kgU            16.70     14.67      14% 
               -------------------------------------------------------------
               Electricity     $Cdn/MWh               54        53       2% 
----------------------------------------------------------------------------

HIGHLIGHTS                                              YEAR ENDED          
($ MILLIONS EXCEPT PER SHARE AMOUNTS)                  DECEMBER 31          
                                              ------------------------------
                                                    2012      2011  CHANGE  
----------------------------------------------------------------------------
Revenue                                            2,321     2,384      (3)%
----------------------------------------------------------------------------
Gross profit                                         723       776      (7)%
----------------------------------------------------------------------------
Net earnings attributable to equity holders          266       450     (41)%
----------------------------------------------------------------------------
 $ per common share (basic and diluted)             0.67      1.14     (41)%
----------------------------------------------------------------------------
Adjusted net earnings (non-IFRS, see Non-IFRS                               
 measures)                                           447       509     (12)%
----------------------------------------------------------------------------
 $ per common share (adjusted and diluted)          1.13      1.29     (12)%
----------------------------------------------------------------------------
Cash provided by operations (after working                                  
 capital changes)                                    644       745     (14)%
----------------------------------------------------------------------------
Average        Uranium                             47.62     49.17      (3)%
 realized                      $US/lb                                       
 prices                                                                     
                                                                            
                               $Cdn/lb             47.61     49.18      (3)%
               -------------------------------------------------------------
               Fuel services   $Cdn/kgU            17.24     16.71       3% 
               -------------------------------------------------------------
               Electricity     $Cdn/MWh               55        54       2% 
----------------------------------------------------------------------------



The 2012 annual financial statements have been audited; however, the 2011 and 2012 fourth quarter financial information presented is unaudited. You can find a copy of our 2012 audited financial statements on our website at cameco.com. Our 2012 annual management's discussion and analysis (MD&A) will be posted on our website before markets open on Monday, February 11, 2013.


Starting in the first quarter of 2013, IFRS 11 - Joint Arrangements requires that we account for our interest in Bruce Power Limited Partnership (BPLP) using equity accounting. We will recast our quarterly results for 2012 for comparative purposes.


For the purposes of this document our interest in BPLP is presented in accordance with the proportionate consolidation method.


Full year


Our net earnings attributable to equity holders (net earnings) were $266 million ($0.67 per share diluted) compared to $450 million ($1.14 per share diluted) in 2011 mainly due to:

###PRECONTENT2###

See 2012 Financial results by segment for more detailed discussion.


Fourth quarter


In the fourth quarter of 2012, our net earnings were $45 million ($0.11 per share diluted), a decrease of $220 million compared to $265 million ($0.67 per share diluted) in 2011. This decline was largely the result of the $168 million write-down of our interest in the Kintyre project and lower earnings from our uranium business, partially offset by stronger results in the electricity business. Uranium profits were impacted by a 7% decline in the average realized selling price due mainly to a lower spot price compared to the fourth quarter of 2011. Earnings in the electricity business improved as a result of higher generation and lower operating costs.


The 5% decrease in adjusted net earnings in the quarter followed the same trend as our net earnings, due to lower results in our uranium business, partially offset by the results in our electricity business.


See 2012 Financial results by segment for more detailed discussion.


Impairment charge on non-producing property


During the fourth quarter of 2012, we recorded a $168 million write-down of the carrying value of our interest in Kintyre, our advanced uranium exploration project in Australia. Due to the weakening of the uranium market since the asset was purchased in 2008, no increase in mineral resources in 2012 and the decision not to proceed with the feasibility study, we concluded it was appropriate to recognize an impairment charge for this asset. Kintyre remains an important asset in our portfolio. However, given the current state of the market, it was necessary to reduce its carrying value at this time. The amount of the write-down was determined as the excess of the carrying value over the fair value less cost to sell based on the implied fair value of the resources in place using comparable market transaction metrics.


The nuclear energy industry today


In last year's annual review of the uranium market, we indicated that the near-term environment for the industry was challenging, but that the long-term outlook remained very positive. We believe this continues to be the case today.


There was little improvement in 2012 over 2011 due to the lingering effects of the events in Japan, as well as global economic slowdown. However, we started to see some clarity on issues that have been overhanging the market. The most significant of these was the establishment in Japan of the Nuclear Regulatory Authority (NRA), which is currently drafting new safety standards for the nuclear industry in that country, against which reactor restarts will be evaluated. The NRA indicated that this process would likely take until mid-2013. While this means that reactor restarts will take longer than we had previously thought, we believe that the NRA brings important stability to the nuclear regulatory environment in Japan, and welcome the clarity it has already brought to the issue of reactor restarts.


We believe the election of the Liberal Democratic Party (LDP) in Japan will be similarly positive for the nuclear industry. Though it remains to be seen what kind of energy policy will emerge from the newly elected government, the LDP has been positively disposed towards nuclear in the past, and has been clear that rebuilding Japan's economy is its main priority, in which the nuclear industry plays a large role.


Later in 2012, China lifted a temporary moratorium on new reactor construction and has since started construction on four reactors. The resumption of reactor construction in China is clearly a positive signal for the market.


Beyond Japan and China, some other countries made changes to their nuclear programs, including announcements of older reactor retirements from Canada, France and Belgium. India also revised its 2020 nuclear target down from 20 to 14.6 gigawatts. These changes, combined with slower than expected restarts in Japan, the temporary pause in China new-build approvals, and slower economic growth worldwide, caused us to re-examine our reactor forecast at the end of 2012. While the market continues to evolve, our current estimates project nuclear generating capacity to reach about 510 gigawatts by 2022 from today's 392 gigawatts, which represents average annual growth of 3%. Of this expected growth, approximately 64 new reactors with 64 gigawatts of generating capacity are under construction today.


Reactor retirements and delays in both restarts and new construction have had an effect on demand and the uranium price in 2012. There has been concern that excess inventories resulting from reduced requirements, deferrals and/or cancellations of deliveries under sales contracts could be introduced to the market. In 2012, any excess inventories have been responsibly managed between suppliers and customers, but the situation has caused market participants to be discretionary in their purchases and the uranium price to remain depressed. This remains the case at the beginning of 2013, but we believe the clearing of excess inventories, resumption of restarts in Japan and new-build around the world, in addition to promising supply-demand fundamentals, will lead to improved market conditions. We also anticipate utilities will be ramping up contracting activities well in advance of their requirements becoming uncovered around 2016.


The other side of the equation is supply, which saw a great deal of destruction and deferral in 2012 as the uranium spot price remained at a level well below where new projects are economic. A number of uranium producers decreased their production growth plans, ourselves included when we announced the adjustment to our growth plans from 40 million pounds annual production down to 36 million pounds of annual supply by 2018.


These challenges to primary supply occur while secondary supply is decreasing as a result of the end of the Russian Highly Enriched Uranium (HEU) commercial agreement in 2013, and while steady demand growth continues - with an expectation that it will reach about 3% per year.


So, although the supply-demand outlook continues to evolve, nuclear remains an important part of the global energy mix and it is clear that new uranium supply will be needed. Though some of the future supply gap could be filled by additions to secondary supplies, the majority will need to come from new mines and expansions to existing mines, which we expect will bring the economics of new production to bear on the market.


Outlook for 2013


Over the next several years, we expect to invest significantly in expanding production at existing mines and advancing projects, subject to market conditions, as we pursue our growth strategy. The projects are at various stages of development, from exploration and evaluation to construction.



We expect our existing cash balances and operating cash flows will meet our anticipated 2013 capital requirements without the need for significant additional funding. Cash balances will decline as we use the funds in our business and pursue our growth plans.


Our outlook for 2013 reflects the growth expenditures necessary to help us achieve our strategy. We do not provide an outlook for the items in the table that are marked with a dash.


See Financial results by segment for details.


2013 Financial outlook


BPLP is not included in consolidated amounts due to a change in accounting (see below). NUKEM is also excluded (see below).

###PRECONTENT3###

Consolidated outlook


Effective January 1, 2013, with the adoption of IFRS 11 - Joint Arrangements, we will apply the equity method of accounting for our interest in BPLP and will no longer consolidate our share of their revenues. Our revenue outlook for 2013 does not include BPLP. For comparative purposes, our revenue for 2012 was $1,851,000 excluding BPLP. Furthermore, our outlook for 2013 presented below does not include any revenues expected to be recognized through NUKEM (see NUKEM Gmbh).


We expect consolidated revenue to be up to 5% higher in 2013 due to:

###PRECONTENT4###

We expect administration costs (not including stock-based compensation) to be up to 5% lower than in 2012 due to expected reductions in business development and corporate administrative activities related to our adjusted growth plans.


We expect exploration expenses to be about 5% to 10% lower than they were in 2012 due to:

###PRECONTENT5###

In 2012, approximately $27 million in cash taxes became payable on receipt of the reassessment of our 2007 tax return due to the ongoing dispute with the Canada Revenue Agency (CRA) related to our transfer pricing structure and methodology. The Canadian Income Tax Act includes provisions that require certain companies to pay 50% of the tax associated with disputed reassessments up front until the dispute is settled. Until now, we have not been required to make any significant cash payments due to the availability of elective deductions and tax loss carryovers. We expect CRA will reassess our tax returns for subsequent years on a similar basis and that these will result in future cash payments on receipt of the reassessments. See note 24 to the financial statements for more information.


We have contractual arrangements to sell uranium produced at our Canadian mining operations to a trading and marketing company located in a foreign jurisdiction. These arrangements reflect the uranium markets at the time they were signed, with the risk and benefit of subsequent movements in uranium prices accruing to the foreign trading and marketing company.


On an adjusted net earnings basis, we expect a recovery of 15% to 20% in 2013 from our uranium, fuel services and electricity segments, as taxable income in Canada is expected to decline. Subject to our success in the litigation with CRA, we expect our tax rate to continue in accordance with the 2013 outlook until the contractual arrangements noted above expire in 2016. As these arrangements expire and are replaced by new contracts that reflect the uranium market at the time of signing, our tax expense is expected to rise over time.


First quarter 2013


It is not our practice to provide earnings outlook. However, due to a combination of factors expected to occur in the first quarter, we have determined it appropriate to provide some outlook for investors regarding our current expectations for our first quarter earnings.


In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns, sales volumes and revenue, can vary significantly. We expect our uranium deliveries for the first quarter will be in the range of 5 million to 6 million pounds, down considerably from the 8 million reported in the first three months of 2012. Uranium sales for the balance of 2013 are expected to be more heavily weighted (approx. 60%) to the second half of the year. However, not all delivery notices have been received to date, which could alter the delivery pattern. Typically, we receive notices six months in advance of the requested delivery date.


In addition, BPLP has outages scheduled for three of its four units in the first three months of 2013. Accordingly, we expect electricity generation to be significantly lower in the first quarter of 2013 than it was in the first quarter of 2012. The capacity factor is likely to be in the range of 75% to 80% and it is probable BPLP will report an operating loss for the quarter.


As a result, we expect our adjusted net earnings for the first quarter of 2013 will be significantly lower than the $124 million ($0.31 per share) in the first quarter of 2012. We do not believe that these factors will continue to have an impact on our adjusted net earnings for subsequent quarters of 2013. The guidance we have provided in the outlook table reflects our current expectations for the full year. We also expect our net earnings attributable to equity holders will be similarly impacted.


Uranium outlook


We expect to produce 23.3 million pounds in 2013 and have commitments under long-term contracts to purchase 12 million pounds.


Based on the contracts we have in place, we expect to sell between 31 million and 33 million pounds of U3O8 in 2013. We expect the unit cost of sales to be up to 5% higher than in 2012. The increase is due primarily to higher costs for produced material. If we decide to make additional discretionary purchases in 2013, then we expect the overall unit cost of sales to increase further.


Based on current spot prices, revenue should be up to 5% higher than it was in 2012 as a result of an expected increase in the realized price.


Price sensitivity analysis: uranium


The table below is not a forecast of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table. It is designed to indicate how the portfolio of long-term contracts we had in place on December 31, 2012 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on December 31, 2012, and none of the assumptions we list below change.


We intend to update this table each quarter in our MD&A to reflect deliveries made and changes to our contract portfolio each quarter. As a result, we expect the table to change from quarter to quarter.


Expected realized uranium price sensitivity under various spot price assumptions


(rounded to the nearest $1.00)

###PRECONTENT6###

The table illustrates the mix of long-term contracts in our December 31, 2012 portfolio, and is consistent with our contracting strategy. It has been updated to December 31, 2012 to reflect:

###PRECONTENT7###

Our portfolio includes a mix of fixed-price and market-related contracts, which we target at a 40:60 ratio. Those that are fixed at lower prices or have low ceiling prices will yield prices that are lower than current market prices. In 2012, a number of older contracts expired and we are starting to deliver into more favourably priced contracts.


Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table:


Sales

###PRECONTENT8###

Deliveries

###PRECONTENT9###

Inflation

###PRECONTENT10###

Prices

###PRECONTENT11###

Cameco's share of production - annual forecast to 2017

###PRECONTENT12###

Our 2013 and future annual production targets for Inkai assume, and we expect, that Inkai will obtain the necessary government permits and approvals to produce at an annual rate of 5.2 million pounds (100% basis), including an amendment to the resource use contract.


There is no certainty Inkai will receive these permits or approvals. If Inkai does not, or if the permits and approvals are delayed, Inkai may be unable to achieve its 2013 and future annual production targets and we may have to re-categorize some of Inkai's mineral reserves as resources.


This forecast is forward-looking information. It is based on the assumptions and subject to the material risks discussed at the end of this document, and specifically on the assumptions and risks noted above and listed below. Actual production may be significantly different from this forecast.


Assumptions

###PRECONTENT13###

Material risks that could cause actual results to differ materially

###PRECONTENT14###

Fuel services outlook


In 2013, we plan to produce 14 million to 15 million kgU, and we expect sales volumes to be up to 5% higher than in 2012. Overall revenue is expected to increase by 5% to 10%, as a result of the higher volumes and an expected increase in the average realized price. We expect the unit cost of product sold (including D&A) to decrease by 0% to 5%, therefore overall gross profit will increase as a result.


NUKEM Gmbh (NUKEM)


On January 9, 2013, we completed the acquisition of NUKEM GmbH from Advent International (Advent) and other shareholders. NUKEM is one of the world's leading traders and brokers of nuclear fuel products and services.


NUKEM was acquired for cash consideration of EUR107 million ($140 million (US)), plus closing adjustments. We also assumed NUKEM's net debt which amounted to about EUR84 million ($111 million (US)) on January 9, 2013. Acquisition related costs of $4 million have been expensed and included in administration expense in the consolidated statement of earnings. We received the economic benefits of owning NUKEM as of January 1, 2012, however, in accordance with accounting requirements, our financial reporting will reflect results from January 9, 2013 forward.


The purchase agreement also includes an earn-out provision that could provide Advent with a share of NUKEM's earnings under certain conditions for the years 2012 through 2014. The earn-out is based on NUKEM exceeding certain minimum threshold levels of EBITDA, as specified and defined in the purchase agreement. The EBITDA is derived from NUKEM's audited financial statements and the earn-out payment to Advent is paid in the following year. For 2012, we estimate the earn-out amount will be about $5 million (US).


For accounting purposes, the purchase price is allocated to the assets and liabilities acquired based on their fair values as of the acquisition date (January 9, 2013). As the acquisition has closed very recently, we have not yet finalized the allocation of the purchase price. However, we expect that the majority of the purchase price will be allocated to the purchase and sales contracts acquired, nuclear fuel inventories, and goodwill.


NUKEM outlook


The requirement to assign fair values to the sales and purchase contracts as of the acquisition date will impact the future operating results reported for NUKEM. For example, NUKEM is a party to the Russian HEU commercial agreement, which provides for the purchase of uranium at a price well below the current market. We will assign a portion of the purchase price to this contract. Our future cost of sales will reflect the amortization of the value assigned to the contract in the periods in which this HEU material is delivered. This accounting will be applied to all contracts in the portfolio as of the acquisition date. As a result, we expect the profit margins we report for NUKEM will be in the range of 3% to 5% in 2013. We plan to report NUKEM as a separate business segment.


For 2013, NUKEM expects to deliver approximately 9 million to 11 million pounds of uranium and about 500,000 Separative Work Units (enrichment), resulting in total revenues in the range of $500 million to $600 million. NUKEM expects to incur costs for administration in the range of $10 million to $12 million. The effective income tax rate is expected to be in the range of 30% to 35%. Operating cash flows are expected to be in the range of $100 million to $125 million.


Electricity outlook


Bruce Power estimates the average capacity factor for the four Bruce B reactors to be 88% in 2013, and actual output to be about 5% to 10% lower than it was in 2012 due to more planned outage days in 2013. The 2013 realized price for electricity is projected to be slightly lower than 2012. As a result we expect that revenue will decrease by about 5% to 10%.


We expect the average unit cost (net of cost recoveries) to be 25% to 30% higher in 2013 and total operating costs to increase by about 15% to 20%, mainly due to more planned outages resulting in higher costs.


In 2013, we will account for our interest in BPLP using equity accounting.


Capital spending


Starting in 2013, we are classifying capital spending as sustaining, capacity replacement or growth. As a mining company, sustaining capital is the money we spend to keep our facilities running in their present state, which would follow a gradually decreasing production curve, while capacity replacement capital is spent to maintain current production levels at those operations. Growth capital is money we invest to generate incremental production, and for business development. Previously, we categorized our capital spending as either sustaining (which included capacity replacement projects) or growth.

###PRECONTENT15###

Capital expenditures were 5% above our 2012 plan, mainly due to variances at Cigar Lake caused by a change in the timing of expenditures and increased costs.


We expect total capital expenditures for uranium and fuel services to decrease by about 1% in 2013.

###PRECONTENT16###

We expect total capital expenditures for uranium and fuel services to decrease by about 1% in 2013.


Major sustaining, capacity replacement and growth expenditures in 2013 include:

###PRECONTENT17###

Our growth capital expenditures are related to our strategy to increase annual supply to 36 million pounds by 2018 and maintain the ability to respond quickly to changing market signals. The mix of projects and their underlying capital estimates could change significantly.


This information regarding currently expected capital expenditures for future periods is forward-looking information, and is based upon the assumptions and subject to the material risks discussed at the end of this document. Our actual capital expenditures for future periods may be significantly different.


Sensitivity analysis


At December 31, 2012, every one-cent change in the value of the Canadian dollar versus the US dollar would change our 2013 net earnings by about $10 million (Cdn). This sensitivity is based on an exchange rate of $1.00 (US) for $1.00 (Cdn).


For 2013:

###PRECONTENT18###

Non-IFRS measures - Adjusted net earnings


Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and adjusted for impairment charges on non-producing properties.


Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently so you may not be able to make a direct comparison to similar measures presented by other companies.


To facilitate a better understanding of these measures, the table below reconciles adjusted net earnings with our net earnings for the years ended 2012, 2011 and 2010, as reported in our financial statements.

###PRECONTENT19###

Fourth quarter


Production volumes for the quarter decreased by 2% year over year. See Operations and development projects for more information.


Uranium revenues were down 3% due to a 7% decrease in the Canadian dollar average realized price, partially offset by a 4% increase in sales volumes.


Our realized prices this quarter were lower than the fourth quarter of 2011 mainly due to lower US dollar prices under market related contracts. In the fourth quarter of 2012, the uranium spot price averaged $42.46 (US), 18% lower than the $51.79 (US) in the fourth quarter of 2011.


Total cost of sales (including D&A) increased by 13% ($472 million compared to $417 million in 2011). This was mainly the result of the following:

###PRECONTENT20###

The net effect was a $77 million decrease in gross profit for the quarter.


Full year


Production volumes in 2012 were 2% lower than 2011 due to lower production from Smith Ranch-Highland and McArthur River/Key Lake, which had record production in 2011. See Operations and development projects for more information.


Uranium revenues this year were down 4% compared to 2011, due to a slight decrease in sales volumes and a decrease of 3% in the Canadian dollar average realized price. Our realized prices this year in US dollars were 3% lower than 2011 mainly due to lower US dollar prices under market-related contracts. The spot price for uranium averaged $48.40 in 2012, a decline of 14% compared to the 2011 average price of $56.36. Total cost of sales (including D&A) increased by 6% this year ($1.0 billion compared to $984 million in 2011). This was mainly the result of the following:

###PRECONTENT21###

The net effect was a $128 million decrease in gross profit for the year.


The following table shows the costs of produced and purchased uranium incurred in the reporting periods (non-IFRS measures, see below). These costs do not include selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales.

###PRECONTENT22###

Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow.


These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently so you may not be able to make a direct comparison to similar measures presented by other companies.


To facilitate a better understanding of these measures, the table below presents a reconciliation of these measures to our unit cost of sales for the years ended 2012 and 2011 as reported in our financial statements.

###PRECONTENT23###

Fourth quarter


Total revenue decreased by 7% due to an 18% decrease in sales volumes, offset by a 14% increase in realized price.


The total cost of products and services sold (including D&A) decreased by 2% ($79 million compared to $81 million in the fourth quarter of 2011) due to the decrease in sales volumes, offset by an increase in the average unit cost of sales. When compared to 2011, the average unit cost of sales was 20% higher due to the mix of fuel services products sold and to higher cost recoveries being recorded in 2011.


The net effect was a $6 million decrease in gross profit.


Full year


Total revenue decreased by 9% due to a 12% decrease in sales volumes. We set lower sales target in 2012 due to weak market conditions at the beginning of the year.


The total cost of products and services sold (including D&A) decreased by 6% ($235 million compared to $251 million in 2011) due to the decrease in sales volumes. The average unit cost of sales was 6% higher due to higher unit costs for UF6 relating to lower production.


The net effect was a $12 million decrease in gross profit.


Electricity results


Fourth quarter


Total electricity revenue increased 16% due to higher output and slightly higher realized price. Realized prices reflect spot sales, revenue recognized under BPLP's agreement with the OPA, and financial contract revenue. BPLP recognized revenue of $198 million this quarter under its agreement with the OPA, compared to $147 million in the fourth quarter of 2011. The equivalent of about 58% of BPLP's output was sold under financial contracts this quarter, compared to 66% in the fourth quarter of 2011. From time to time BPLP enters the market to lock in gains under these contracts. Gains on BPLP's contracting activity in the fourth quarter 2012 were similar to 2011.


The capacity factor was 100% this quarter, up from 86% in the fourth quarter of 2011. There were no outage days in the fourth quarter this year compared to a planned outage in 2011.


Operating costs were $221 million compared to $271 million in 2011 due to lower supplemental lease payments and lower maintenance costs incurred as a result of no outages in the fourth quarter.


The result was a 194% increase in our share of earnings before taxes.


BPLP distributed $140 million to the partners in the fourth quarter. Our share was $44 million. BPLP capital calls to the partners in the fourth quarter were $14 million. Our share was $4 million. The partners have agreed that BPLP will distribute excess cash monthly, and will make separate cash calls for major capital projects.


Full year


BPLP's increased results in 2012 when compared to 2011 are partially the result of revenues being 10% higher than in 2011 due to a 2% increase in realized electricity prices. BPLP's average realized price reflects spot sales, revenue recognized under BPLP's agreement with the Ontario Power Authority (OPA) and revenue from financial contracts.


BPLP has an agreement with the OPA under which output from each B reactor is supported by a floor price (currently $51.62/MWh) that is adjusted annually for inflation. The floor price mechanism and any associated payments to BPLP for the output from each individual B reactor will expire on a date specified in the agreement. The expiry dates are December 31, 2015 for unit B6, December 31, 2016 for unit B5, December 31, 2017 for unit B7 and December 31, 2019 for unit B8. Revenue is recognized monthly, based on the positive difference between the floor price and the spot price. BPLP does not have to repay the revenue from the agreement with the OPA to the extent that the floor price for



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