NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Terminated and Replaced Existing Debt Derivatives and Entered into New Debt Derivatives hedged transaction affects net income, equivalent amounts are recycled into net income from the hedging reserve. We settled US $435 million of Expenditure Derivatives in the year ended December 31, 2013 for Cdn $430 million and the Expenditure Derivatives remaining at December 31, 2013 have terms to maturity ranging from January 2014 to December 2014. All of our currently outstanding Expenditure Derivatives have been designated as effective hedges against foreign exchange risk for accounting purposes. The March 6, 2013 termination is related to Debt Derivatives hedging the US $350 million senior notes due 2038 (2038 Notes). The Debt Derivatives that were terminated on March 6, 2013 were not designated as effective hedges for accounting purposes and had an original term of 10 years to August 15, 2018. The new Debt Derivatives hedge the foreign exchange risk associated with the principal and interest obligations on the 2038 Notes to their maturity at market rates on the respective dates of the transactions and are designated as effective hedges for accounting purposes. The September 27, 2013 termination is related to Debt Derivatives hedging senior notes scheduled to mature in 2014 and 2015. Only the fixed foreign exchange rate was changed for the new Debt Derivatives. All other terms are the same as the terminated Debt Derivatives they replaced. Before the Debt Derivatives were terminated on September 27, 2013, changes in their fair value were recorded in other comprehensive income and were periodically reclassified to net income to offset foreign exchange gains or losses on the related debt or to modify interest expense to its hedged amount. On the termination date, the balance in the hedging reserve related to these Debt Derivatives was a $10 million loss. $1 million of this related to future periodic exchanges of interest and will be recorded in net income over the remaining life of the related debt securities. The remaining $8 million, net of income taxes of $1 million, will remain in the hedging reserve until such time as the related debt is settled. We use stock-based compensation derivatives (Equity Derivatives) to hedge the market price appreciation risk of the RCI Class B shares granted under our stock-based compensation programs. We use Equity Derivatives for risk-management purposes only. In 2013, we entered into Equity Derivatives to offset the price appreciation risk associated with 5.7 million RCI Class B Non-Voting shares that were granted under our stock-based compensation programs for stock options, RSUs and DSUs (see note 24). The Equity Derivatives were entered into at a weighted average price of $50.37 with original terms to maturity of one year, extendible for further one year periods with the consent of the hedge counterparties. The Equity Derivatives have not been designated as hedges for accounting purposes. We record changes in their fair value as stock-based compensation expense, offsetting a portion of the impact of changes in the market price of RCI Class B Non-Voting shares contained in the recorded amount of the stock-based compensation liability for stock options, RSUs and DSUs. Repayment of Senior Notes and Related Derivative Settlements In June 2013, when we repaid or bought our US $350 million ($356 million) senior notes due 2013, the associated Debt Derivatives were settled at maturity, resulting in total payments of approximately $104 million. The settlements of these Debt Derivatives did not impact net income for the year ended December 31, 2013. The carrying value of cash and cash equivalents, accounts receivable, short-term borrowings, and accounts payable and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments. At December 31, 2013 we have US $6.4 billion (2012 – US $4.2 billion) of US Dollar denominated senior notes and debentures, all of which have been hedged using Debt Derivatives (2012 – 91.7%). We use foreign currency forward contracts (Expenditure Derivatives) to hedge the foreign exchange risk on the notional amount of certain forecasted expenditures. We use Expenditure Derivatives for risk- management purposes only. We determine the fair value of each of our publicly traded investments using quoted market values. We determine the fair value of our private investments by using market values from similar transactions or well established market, asset based or projected income valuation techniques. These are applied appropriately to each investment depending on its future operating and profitability prospects. In 2013, we entered into an additional US $955 million of Expenditure Derivatives maturing from April 2013 through December 2014, at an average rate of $1.0341/US $1. As at December 31, 2013, we had a total of US $900 million ($923 million) of Expenditure Derivatives for our forecasted US dollar denominated expenditures at an average rate of $1.0262/US $1 which have been designated as hedges for accounting purposes. We record changes in fair value of these Expenditure Derivatives in other comprehensive income. Once the The fair values of each of our public debt instruments are based on the year-end trading values. We determine the fair values of our Debt Derivatives and Expenditure Derivatives (Derivatives) using an estimated credit-adjusted mark-to-market valuation by discounting cash flows to the measurement date. In the case of Derivatives in an asset position, the credit spread for the financial institution counterparty is added to the risk-free discount rate to determine the estimated credit-adjusted value for each derivative. For Derivatives in a liability position, our credit spread is added to the risk-free discount rate for each derivative. 116 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT Expenditure Derivatives Fair Values Equity Derivatives 1 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate. 2 Converting from a fixed US$ principal amount to a fixed Cdn$ principal amount. Terminated Debt Derivatives New Debt Derivatives Hedging effect Termination date Notional amount Original maturity date Cash settlement Date entered Derivative amount New maturity date Fixed weighted average 1 Fixed Canadian equivalent 2 March 6, 2013 US $ 350 2018 Nil March 6, 2013 US $ 350 2038 7.62% $ 359 Sept. 27, 2013 US $ 1,075 2014-2015 $ 263 Sept. 27, 2013 US $ 1,075 2014-2015 7.42% $ 1,110