MANAGEMENT’S DISCUSSION AND ANALYSIS Financial Instruments Income and Other Taxes S tock-Based Compensation Stock Option Plans Restricted Share Unit (RSU) Plan Pension Benefits on an annual basis or more often if events or circumstances warrant. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill and indefinite life intangible assets are allocated to cash generating units (or groups of cash generating units) based on the level at which management monitors goodwill, which is not higher than an operating segment. The allocation involves significant estimates of future cash flows, estimated periods of use, applicable discount rates and considerable management judgment, and is made to cash generating units (or groups of cash generating units) that are expected to benefit from the synergies of the business combination. If key estimates differ unfavourably in the future, we could experience impairment charges that could decrease net income. We did not record an impairment charge in 2013 since the recoverable amounts of the cash generating units exceeded their carrying values. In 2012, we recorded an impairment charge of $80 million related to certain Media assets, due to the challenging economic conditions, weakening industry expectations and a decline in advertising revenues. The fair values of our Derivatives are recorded using an estimated credit-adjusted mark-to-market valuation. If the Derivatives are in an asset position (i.e., the counterparty owes Rogers), the credit spread for the bank counterparty is added to the risk-free discount rate to determine the estimated credit-adjusted value. If the Derivatives are in a liability position (i.e., Rogers owes the counterparty), our credit spread is added to the risk-free discount rate. The estimated credit-adjusted value of Derivatives is affected by changes in credit spreads between us and our counterparties. We make income and other tax provisions based on information currently available in each of the jurisdictions in which we operate. While we believe we have paid and provided for adequate amounts of tax, our business is complex and significant judgement is required in interpreting tax legislation and regulations and estimating future levels of taxable income. Our tax filings are subject to audit by the relevant government revenue authorities and the results of the government audit could materially change the amount of our actual income tax expense, income taxes payable or receivable, other taxes payable or receivable and deferred income tax assets and liabilities and could, in certain circumstances, result in the assessment of interest and penalties. When we account for defined benefit pension plans, assumptions are made in determining the valuation of benefit obligations. Assumptions and estimates include the discount rate, the rate of compensation increase and the mortality rate. Changes to these primary assumptions and estimates would affect the pension expense, pension asset and liability and other comprehensive income. Changes in economic conditions may also have an impact on our pension plan because there is no assurance that the plan will be able to earn the assumed rate of return. Market-driven changes may also result in changes in the discount rates and other variables that would require us to make contributions in the future that differ significantly from the current contributions and assumptions incorporated into the actuarial valuation process. The table below shows what the impact of an increase or decrease in the primary assumptions and estimates on our accrued benefit obligation and pension expense for 2013 would be: Our employee stock option plans attach cash-settled share appreciation rights (SARs) to all new and previously granted options. The SARs feature allows the option holder to elect to receive in cash an amount equal to the intrinsic value, instead of exercising the option and acquiring Class B Non-Voting shares. We measure stock-based compensation to employees at fair value. We determine fair value of options using our Class B Non-Voting share price and option pricing models, and record all outstanding stock options as liabilities. The liability is marked-to-market in each period and is amortized to expense using a graded vesting approach over the period when employee services are rendered, or over the period to the date an employee is eligible to retire, whichever is shorter. The expense in each period is affected by the change in the price of our Class B Non- Voting shares during the life of the option. We record outstanding RSUs as liabilities, measuring our liabilities and compensation costs based on the award’s fair value, and recording it as a charge to operating costs over the vesting period of the award. If the award’s fair value changes after it has been granted and before the settlement date, we record the resulting changes in the liability as a charge to operating costs in the year that the change occurs. The payment amount is established as of the vesting date. We record outstanding DSUs as liabilities, measuring our liabilities and compensation costs based on the awards’ fair values at the grant date. If an award’s fair value changes after it has been granted and before the settlement date, we record the resulting changes in our liability as a charge to operating costs in the year that the change occurs. The payment amount is established as of the exercise date. Deferred Share Unit (DSU) Plan 80 ROGERS COMMUNICATIONS INC. 2013 ANNUAL REPORT (In millions of dollars) Accrued benefit obligation at end of fiscal 2013 Pension expense fiscal 2013 Discount rate 5.10 % 4.50 % Impact of: 0.5 % increase $ (105) $ (11) 0.5 % decrease 120 13 Rate of compensation increase 3.00 % 3.00 % Impact of: 0.25 % increase $ 14 $ 3 0.25 % decrease (14) (2) Mortality rate Impact of: 1 year increase $ 26 $ 4 1 year decrease (27) (3)