Net Earnings and Revenue

Our net earnings attributable to equity holders (net earnings) in 2015 were $65 million ($0.16 per share diluted) compared to $185 million ($0.47 per share diluted) in 2014, mainly due to:

• greater losses on foreign exchange derivatives due to the weakening of the Canadian dollar. See Foreign exchange for details.
• lower tax recoveries, primarily due to the write-off of our deferred tax asset in the US. See Income taxes for details.

partially offset by:

• lower impairment charges ($215 million in 2015; $327 million in 2014)
• higher earnings in our uranium and fuel services segments due to higher average realized prices
• higher earnings in our NUKEM segment as a result of higher volumes and average realized price
• reduction of the provision related to our CRA litigation. See Income taxes for details

In addition, in 2014 there were a number of one-time items that contributed to the higher net earnings in 2014 compared to 2015, including:

• the sale of our interest in BPLP resulting in a $127 million gain in 2014
• a favourable settlement of $66 million in 2014 with respect to a dispute regarding a long-term supply contract with a utility customer

partially offset by:

• payment of an early agreement termination fee of $18 million as a result of the cancellation of our toll conversion agreement with Springfields Fuels Limited (SFL), and $12 million for settlement costs with respect to early redemption of our Series C debentures in 2014
• the write-off of $41 million of assets under construction in 2014 as a result of changes made to the scope of a number of projects

Three-year trend

Our net earnings normally trend with revenue, but, in recent years, have been significantly influenced by unusual items.

In 2014, our net earnings were $133 million lower than in 2013 primarily due to:

• an increase in impairment charges ($70 million in 2013; $327 million in 2014)
• no earnings from BPLP, which we divested in the first quarter of 2014
• the write-off of $41 million of assets under construction as a result of changes made to the scope of a number of projects
• payment of an early termination fee of $18 million incurred as a result of our toll conversion agreement with SFL, and settlement costs of $12 million with respect to early termination of our Series C debentures
• lower earnings from our fuel services business as a result of a decrease in sales volumes and higher unit cost of sales
• higher losses on foreign exchange derivatives due to the weakening Canadian dollar. See Foreign exchange for more information.

partially offset by:

• a $127 million gain on the sale of our interest in BPLP in 2014
• higher earnings from our uranium segment due to a higher average realized price
• a favourable settlement of $66 million in a dispute regarding a long-term supply contract with a utility customer
• lower exploration costs
• higher tax recoveries resulting from higher pre-tax losses in Canada

Impairment charge on producing assets

During the fourth quarter of 2015, we recognized a $210 million impairment charge related to our Rabbit Lake operation. The impairment was due to increased uncertainty around future production sources for the Rabbit Lake mill as a result of the ongoing economic conditions. The amount of the charge was determined as the excess of carrying value over the recoverable amount. The recoverable amount of the mill was determined to be $69 million. See note 9 to the financial statements.

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, the write-off of assets, NUKEM inventory write-down, loss on exploration properties, gain on interest in BPLP (after tax), and income taxes on adjustments.

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 2015, 2014 and 2013.

The following table shows what contributed to the change in adjusted net earnings for 2015.

Three-year trend

Our adjusted net earnings decreased from 2013 to 2014, and decreased again from 2014 to 2015.

The 7% decrease from 2013 to 2014 resulted from:

• no earnings from BPLP due to divestiture of our interest in the first quarter of 2014
• an early termination fee of $18 million incurred as a result of the cancellation of our toll conversion agreement with SFL, which was to expire in 2016
• settlement costs of $12 million with respect to the early redemption of our Series C debentures
• lower earnings from our fuel services business as a result of lower sales volumes and higher unit cost of sales
• greater losses on foreign exchange derivatives due to the weakening of the Canadian dollar

partially offset by:

• higher earnings in our uranium segment due to a higher average realized price
• a favourable settlement of $66 million with respect to a dispute regarding a long-term supply contract with a utility customer
• lower exploration costs due to a more focused effort on our core projects in Saskatchewan, with decreases in activity elsewhere, particularly at our Kintyre project in Australia and at Inkai

The 17% decrease from 2014 to 2015 resulted from:

• greater losses on foreign exchange derivatives due to the weakening of the Canadian dollar, see Foreign exchange for more information
• lower tax recoveries, primarily due to the write-off of our deferred tax asset in the US. See Income taxes for details.

partially offset by:

• higher earnings in our uranium and fuel services segments mainly due to a higher average realized price
• higher earnings from our NUKEM segment mainly due to higher sales volumes and a higher average realized price
• a reduction of the provision related to our CRA litigation, see Income taxes for details

In addition, in 2014 there was a favourable settlement of $66 million with respect to a dispute regarding a long-term supply contract with a utility customer that contributed to the higher adjusted net earnings in 2014 compared to 2015. The impact of the settlement was partially offset by an early termination fee of $18 million incurred as a result of the cancellation of our toll conversion agreement with SFL and settlement costs of $12 million with respect to the early redemption of our Series C debentures in 2014.

Average realized prices

Revenue

The following table shows what contributed to the change in revenue for 2015.

See 2015 Financial results by segment for more detailed discussion.

Three-year trend

In 2014, revenue decreased by 2% compared to 2013 due to lower sales revenues in our NUKEM and fuel services segments as we reduced sales volumes in response to market conditions. This was partially offset by higher revenues in our uranium business due to a higher average realized price for uranium resulting from the weakening of the Canadian dollar compared to 2013. The realized foreign exchange rate was 1.10 compared to 1.03 in 2013.

In the third quarter of 2015, we projected our annual revenue to increase between 5% and 10%, but realized a 15% increase over 2014. One contributing factor was higher revenue in our NUKEM segment as a result of higher than expected sales volumes, which were driven by increased market activity in the fourth quarter. In addition, sales revenues in all of our operating segments increased compared to 2014 due to higher realized prices resulting from the weakening of the Canadian dollar. The realized foreign exchange rate was 1.27 compared to 1.10 in 2014.

Outlook for 2016

We expect consolidated revenue to decrease up to 5% in 2016, based on currently committed sales volumes, due to a planned decrease in uranium and fuel services sales volumes. If we make additional sales with deliveries in 2016, we would expect our revenue outlook to increase. In our uranium and fuel services segments, our customers choose when in the year to receive deliveries. As a result, our quarterly delivery patterns and, therefore, our sales volumes and revenue can vary significantly as shown below. We expect the quarterly distribution of uranium deliveries in 2016 to be weighted to the second half of the year. However, not all delivery notices have been received to date and the expected delivery pattern could change. Typically, we receive notices six months in advance of the requested delivery date.

Discontinued operation

On March 27, 2014, we completed the sale of our 31.6% limited partnership interest in BPLP, which was accounted for effective January 1, 2014. The aggregate sale price for our interest in BPLP and certain related entities was $450 million. We realized an after tax gain of $127 million on this divestiture. As a result of the transaction, we presented the results of BPLP as a discontinued operation and we revised our statement of earnings, statement of comprehensive income and statement of cash flows to reflect the change in presentation. See note 6 to the financial statements for more information.