instruments for accounting purposes are recognized immediately in net
income.
When we designate a derivative instrument as a hedging instrument for
accounting purposes, we:
 first determine that the hedging instrument will be highly effective in
offsetting the changes in fair value or cash flows of the item it is
hedging, and
 formally document the relationship between the hedging instrument
and hedged item, including the risk management objectives and
strategy, and the methods we will use to assess the ongoing
effectiveness of the hedging relationship.
We assess quarterly whether the hedging instrument continues to be
highly effective in offsetting the changes in the fair value or cash flows
of the item it is hedging.
We assess whether an embedded derivative is required to be separated
from the host contract and accounted for as a derivative when we first
become a party to the contract.
Earnings Per Share
We calculate basic earnings per share by dividing the net income or loss
attributable to our Class A and B shareholders by the weighted average
number of Class A and B shares outstanding during the year.
We calculate diluted earnings per share by adjusting the net income or
loss attributable to Class A and B shareholders and the weighted
average number of Class A and B shares outstanding for the effect of
all dilutive potential common shares. We use the treasury stock method
for calculating diluted earnings per share, which considers the impact of
employee stock options and other potentially dilutive instruments.
See note 10 for our calculations of basic and diluted net income per
share.
Inventories
We measure inventories, including handsets, digital cable equipment
and merchandise for resale, at the lower of cost (determined on a first-
in, first-out basis) and its net realizable value. We will reverse a previous
write down to net realizable value if the inventories later increase in
value.
2013 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 97