Shoppers Drug Mart Corporation announces strong results



    - FOURTH QUARTER EARNINGS INCREASE BY 16.0 PERCENT TO $0.71 PER SHARE

    - FULL YEAR EARNINGS INCREASE BY 16.8 PERCENT TO $2.27 PER SHARE

    - ANNUAL DIVIDEND INCREASED BY 34.4 PERCENT TO $0.86 PER SHARE

    TORONTO, Feb. 5 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today
announced its unaudited financial results for the fourth quarter and fiscal
year ended December 29, 2007. The Company also announced that its Board of
Directors has declared a dividend of 21.5 cents per common share, payable
April 15, 2008 to shareholders of record as of the close of business on March
31, 2008. This represents an increase in its quarterly dividend payments of
34.4%, resulting in an annualized dividend payment of 86 cents per common
share.

    Fourth Quarter Results (12 Weeks)

    Fourth quarter sales increased 7.5% to $2.169 billion, with the Company
once again experiencing strong sales growth in all regions of the country. On
a same-store basis, sales increased 3.9% during the fourth quarter of 2007. A
robust capital program, combined with effective marketing campaigns, strong
seasonal programs and solid in-store execution drove this top-line growth.
    Prescription sales increased 8.8% in the fourth quarter to $975 million,
accounting for 45.0% of the Company's sales mix compared to 44.4% in the same
period last year. On a same-store basis, prescription sales increased 5.6%,
driven by strong growth in the number of prescriptions filled, while increased
generic utilization continued to have a deflationary impact on prescription
sales growth.
    Front store sales increased 6.4% to $1.194 billion in the fourth quarter,
with the Company continuing to experience sales and market share gains in all
core categories. On a same-store basis, front store sales increased 2.6%
during the fourth quarter of 2007, a strong result considering the adverse
weather experienced in Central and Eastern Canada that coincided with a major
promotional event. Private label and exclusive brand penetration in the fourth
quarter was 16.1%, the highest ever for the Company, led by strong seasonal
category penetration. While deflationary to sales, increased private label
penetration remains one of the Company's key strategic objectives, as it is
beneficial to margins and profitability. Certain other seasonal merchandise,
notably cards, wrap, books and magazines, also experienced deflationary
pressure during the quarter, as prices were reduced in response to the
appreciation of the Canadian dollar. However, as a result of increased support
from the Company's vendor partners, these price reductions did not have a
negative impact on overall profitability.
    Strong top-line growth, a favourable sales mix and an ongoing commitment
to cost reduction and efficiency, all contributed to net earnings growth.
Fourth quarter net earnings increased 16.0% to $154 million or 71 cents per
share (diluted) from $133 million or 61 cents per share (diluted) a year ago.
    Commenting on the results, Jurgen Schreiber, President and CEO stated,
"We are pleased with our performance in the fourth quarter and are proud of
what we accomplished in 2007. I would like to thank our employees,
Associate-owners and their teams for their hard work, dedication and
commitment this past year, as their efforts allowed us to once again deliver
strong operating and financial results and meet our commitments to
shareholders."
    In reference to the dividend increase, Mr. Schreiber went on to say,
"Since initiating the payment of quarterly dividends three years ago, we have
increased the payout ratio on an annual basis and more than doubled the amount
of cash distributions to shareholders, reflecting our confidence in the
strength of our business model and our ability to generate continued growth in
net earnings and cash flow."

    Fiscal 2007 Results (52 Weeks)

    Sales for fiscal 2007 increased 8.9% to $8.478 billion, with prescription
sales up 9.1% to $3.989 billion and front store sales up 8.7% to
$4.489 billion. On a same-store basis, sales increased 5.2%, with prescription
sales up 5.8% and front store sales up 4.7%. In fiscal 2007, prescription
sales accounted for 47.0% of the Company's sales mix compared to 46.9% in the
prior year.
    Net earnings for fiscal 2007 increased 16.8% to $494 million or $2.27 per
share (diluted) from $422 million or $1.95 per share (diluted) in the prior
year.

    Store Network Development

    During the fourth quarter of 2007, 30 drug stores were opened or
acquired, seven of which were relocations, and one drug store was closed. For
the fiscal year ended December 29, 2007, the Company opened or acquired
121 drug stores, 44 of which were relocations, and closed seven stores. The
Company also added two home health care stores to its network during the
fourth quarter of 2007. At year-end, there were 1,121 stores in the system,
comprised of 1,057 drug stores and 64 Shoppers Home Health Care stores. During
2007, the selling square footage of the store network increased by 11.5%, to
in excess of 9.7 million square feet at year end.

    Fiscal 2008 Outlook (53 Weeks Ending January 3, 2009)

    The Company expects total sales to increase by between 10.5% and 12.0% in
2008, a 53 week fiscal year for the Company. This expectation is underpinned
by same-store sales growth, expressed on a 52 week basis, of between 5.0% and
6.0% in pharmacy and 4.5% to 5.5% in the front store. It is the Company's
expectation that comparable prescription sales growth will continue to be
driven by solid growth in prescription counts, with drug price inflation not
being a significant factor, as generic prescription utilization rates continue
to rise. It is also the Company's expectation that comparable front store
sales will be highest in the first quarter of the year, reflecting the shift
of the Easter season to the first quarter this year from the second quarter in
2007.
    The Company plans to allocate approximately $500 million to capital
expenditures in 2008, with approximately 80% of this amount being invested in
the store network, including acquisitions of drug stores, prescription files
and land. Once again, this should result in an increase in selling square
footage of more than 10%. This will be accomplished through the addition of
between 120 and 130 new drug stores, approximately 40 to 45 of which will be
relocations, and through the completion of up to 10 major expansions. The
Company also plans to add up to five home health care stores to its network in
2008. It is the Company's intention that the capital program be funded from
internally generated cash flow. Remaining free cash flow will be used to fund
the quarterly payment of cash dividends, with any balance directed largely
towards the repayment of debt.

    2007 Annual Report

    The Company's audited consolidated financial statements for the year
ended December 29, 2007 will be available on or before March 28, 2008.
Management's Discussion and Analysis for the year ended December 29, 2007,
including further discussion and analysis of fourth quarter events or items
that affected results of operations, financial position and cash flows, will
also be available on or before March 28, 2008. Both documents will be
contained in the Company's 2007 Annual Report and will available in the
Investor Relations section of the Company's website at
www.shoppersdrugmart.ca, or on the Canadian Securities Administrators' website
at www.sedar.com.

    Other Information

    The Company will hold an analyst call at 3:30 p.m. (Eastern Standard
Time) today to discuss its fourth quarter results and its outlook for fiscal
2008. The call may be accessed by dialing 416-641-6114 from within the Toronto
area, or 1-866-696-5895 outside of Toronto. The call will also be simulcast on
the Company's website for all interested parties. The webcast can be accessed
via the Investor Relations section of the Shoppers Drug Mart website at
www.shoppersdrugmart.ca. The conference call will be archived in the Investor
Relations section of the Shoppers Drug Mart website until the Company's next
analyst call. A playback of the call will also be available by telephone until
11:59 p.m. (Eastern Standard Time) on February 19, 2008. The call playback can
be accessed after 5:00 p.m. (Eastern Standard Time) on Tuesday, February 5,
2008 by dialing 416-695-5800 from within the Toronto area, or 1-800-408-3053
outside of Toronto. The seven-digit passcode number is 3247559.

    Shoppers Drug Mart Corporation is one of the most recognized and trusted
names in Canadian retailing. The Company is the licensor of full-service
retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in
Québec). With more than 1,060 Shoppers Drug Mart and Pharmaprix stores
operating in prime locations in each province and two territories, the Company
is one of the most convenient retailers in Canada. The Company also owns and
operates 64 Shoppers Home Health Care stores, making it the largest Canadian
retailer of home health care products and services. In addition to its retail
store network, the Company also owns MediSystem Technologies Inc., a provider
of pharmaceutical products and services to long-term care facilities in
Ontario and Alberta.

    Forward-looking Information and Statements

    This news release contains forward-looking information and statements
which constitute "forward-looking information" (under Canadian securities
law), and which may be material, regarding, among other things, the Company's
beliefs, plans, objectives, estimates, intentions and expectations, including
as they relate to its operating and financial results, capital expenditures,
dividend policy and the ability to execute on its operating, investing and
financing strategies. The forward-looking information and statements contained
herein are based on certain assumptions by management, certain of which are
set out in this news release. Inherent in the forward-looking information and
statements are known and unknown risks, uncertainties and other factors beyond
the Company's ability to control or predict. Actual results or developments
may differ materially from those contemplated by the forward-looking
information and statements. The material risk factors that could cause actual
results to differ materially from the forward-looking information and
statements contained herein include, without limitation: the risk of adverse
changes to laws and regulations relating to prescription drugs and their sale,
including pharmacy reimbursement and the availability of manufacturer
allowances, or changes to such laws and regulations that increase compliance
costs; the risk of adverse changes to existing pharmacy reimbursement programs
and the availability of manufacturer allowance funding; the risk of increased
competition from other retailers; the risk of exposure to fluctuations in
interest rates; the risk of material adverse changes in foreign currency
exchange rates; the risk of an inability to attract and retain pharmacists;
the risk of changes to the relationships of the Company with third-party
service providers; the risk that the Company will not be able to lease or
obtain suitable store locations on economically favourable terms; the risk
that new or changes to current federal and provincial laws, rules and
regulations, including environmental laws, rules and regulations, may
adversely impact the Company's business and operations; the risk that changes
in tax law, or changes in the way tax law is expected to be interpreted, may
adversely impact the Company's business and operations; the risk that new or
changes to existing accounting pronouncements may adversely impact the
Company; and the risk of damage to the reputation of brands promoted by the
Company, or to the reputation of any supplier or manufacturer of these brands.
    This is not an exhaustive list of the factors that may affect any of the
Company's forward-looking information and statements. Investors and others
should carefully consider these and other risk factors and not place undue
reliance on forward-looking information and statements. Further information
regarding these and other risk factors is included in the Company's public
filings with provincial securities regulatory authorities including, without
limitation, the section entitled "Risks and Risk Management" in the Company's
Management's Discussion and Analysis for the 52 week period ended December 30,
2006 and in the section entitled "Risk Factors" in the Company's Annual
Information Form for the same period. The forward-looking information and
statements contained in this news release represent the Company's views only
as of the date of this release. Forward-looking information and statements
contained in this news release about prospective results of operations,
financial position or cash flows that are based upon assumptions about future
economic conditions and courses of action are presented for the purpose of
assisting the Company's shareholders in understanding management's current
views regarding those future outcomes, and may not be appropriate for other
purposes. While the Company anticipates that subsequent events and
developments may cause the Company's views to change, the Company does not
undertake to update any forward-looking information and statements, except to
the extent required by applicable securities laws.

    Additional information about the Company, including the Annual
Information Form, can be found at www.sedar.com.

    
    SHOPPERS DRUG MART CORPORATION
    Consolidated Statements of Earnings
    (unaudited)
    (in thousands of dollars except per share amounts)
    -------------------------------------------------------------------------

                          12 Weeks Ended                52 Weeks Ended
                   ----------------------------------------------------------
                    December 29,   December 30,   December 29,   December 30,
                           2007           2006           2007           2006
    -------------------------------------------------------------------------

    Sales           $ 2,168,822    $ 2,018,067    $ 8,478,382    $ 7,786,436
    Operating
     expenses
      Cost of goods
       sold and other
       operating
       expenses       1,885,434      1,771,151      7,516,291      6,958,361
    Amortization         41,323         38,083        172,075        144,549
    -------------------------------------------------------------------------

    Operating income    242,065        208,833        790,016        683,526

    Interest expense
     (Note 4)            14,185         10,895         52,873         49,872
    -------------------------------------------------------------------------

    Earnings before
     income taxes       227,880        197,938        737,143        633,654

    Income taxes
      Current            72,501         65,168        249,948        220,398
      Future              1,720            270         (6,433)        (9,235)
    -------------------------------------------------------------------------
                         74,221         65,438        243,515        211,163
    -------------------------------------------------------------------------
    Net earnings    $   153,659    $   132,500    $   493,628    $   422,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings
     per common
     share:

    Basic           $      0.71    $      0.62    $      2.28    $      1.97
    Diluted         $      0.71    $      0.61    $      2.27    $      1.95

    Weighted average
     common shares
     outstanding
      - Basic
         (millions)       216.6          214.8          216.1          213.9
      - Diluted
         (millions)       217.4          216.9          217.2          216.7
    Actual common
     shares
     outstanding
     (millions)           216.8          215.0          216.8          215.0



    SHOPPERS DRUG MART CORPORATION
    Consolidated Statements of Retained Earnings
    (unaudited)
    (in thousands of dollars)
    -------------------------------------------------------------------------

                                                        52 Weeks Ended
                                                 ----------------------------
                                                  December 29,   December 30,
                                                         2007           2006
    -------------------------------------------------------------------------


    Retained earnings, beginning of period        $ 1,225,616    $   941,672
    Impact of the adoption of new accounting
     standards, Handbook Sections 3855, Financial
     Instruments - Recognition and Measurement;
     3865, Hedges; and 1530, Comprehensive Income
     (Note 2)                                              66              -
    Net earnings                                      493,628        422,491
    Dividends                                        (138,398)      (102,952)
    Premium on common shares purchased for
     cancellation                                         (24)       (35,595)
    -------------------------------------------------------------------------
    Retained earnings, end of period              $ 1,580,888    $ 1,225,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Comprehensive Income and
    Accumulated Other Comprehensive Income
    (unaudited)
    (in thousands of dollars)
    -------------------------------------------------------------------------

                          12 Weeks Ended                52 Weeks Ended
                   ----------------------------------------------------------
                    December 29,   December 30,   December 29,   December 30,
                           2007           2006           2007           2006
    -------------------------------------------------------------------------
    Net earnings    $   153,659    $         -    $   493,628    $         -
    Other
     comprehensive
     income, net of
     tax
      Change in
       unrealized
       gain on
       interest rate
       derivatives
       (net of tax
       of $727 and
       $65,
       respectively)     (1,476)             -             24              -
      Change in
       unrealized gain
       on equity
       forward
       derivatives
       (net of tax of
       $54 and $12,
       respectively)       (108)             -            (23)             -
      Amount of
       previously
       unrealized
       gain on equity
       forward
       derivatives
       recognized in
       earnings during
       the period
       (net of tax of
       $23 and $82,
       respectively)        (47)             -           (160)             -
    -------------------------------------------------------------------------
    Other
     comprehensive
     loss                (1,631)             -           (159)             -
    -------------------------------------------------------------------------
    Comprehensive
     income         $   152,028    $         -    $   493,469    $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Accumulated
     other
     comprehensive
     income, upon
     adoption of new
     accounting
     standards
     (Note 2)                                     $       406    $         -
    Other
     comprehensive
     loss (net of
     tax of $29)                                         (159)             -
    -------------------------------------------------------------------------
    Accumulated
     other
     comprehensive
     income, end of
     period                                       $       247    $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SHOPPERS DRUG MART CORPORATION
    Consolidated Balance Sheets
    (unaudited)
    (in thousands of dollars)

                                                  December 29,   December 30,
                                                         2007           2006
    -------------------------------------------------------------------------

    Assets

    Current
      Cash                                        $    27,588    $    62,865
      Accounts receivable                             372,306        307,779
      Inventory                                     1,577,524      1,372,124
      Future income taxes                              60,089         46,407
      Prepaid expenses and deposits (Note 3)          134,692         32,248
    -------------------------------------------------------------------------
                                                    2,172,199      1,821,423

    Property and equipment                          1,126,513        907,728
    Deferred costs                                     32,966         25,936
    Goodwill                                        2,245,441      2,122,162
    Other intangible assets                            57,930         45,249
    Other assets                                        8,990          6,516
    -------------------------------------------------------------------------
    Total assets                                  $ 5,644,039    $ 4,929,014
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities

    Current
      Bank indebtedness                           $   225,152    $   134,487
      Commercial paper                                543,847        503,550
      Accounts payable and accrued liabilities        990,545        843,278
      Income taxes payable                             65,825         70,672
      Dividends payable                                34,686         25,797
      Current portion of long-term debt               298,990              -
    -------------------------------------------------------------------------
                                                    2,159,045      1,577,784

    Long-term debt                                          -        300,000
    Other long-term liabilities                       244,657        188,938
    Future income taxes                                30,171         21,689
    -------------------------------------------------------------------------
                                                    2,433,873      2,088,411
    -------------------------------------------------------------------------

    Associate interest                                113,119        116,649

    Shareholders' equity

    Share capital                                   1,506,020      1,491,264
    Contributed surplus                                 9,892          7,074

    Accumulated other comprehensive income                247              -
    Retained earnings                               1,580,888      1,225,616
    -------------------------------------------------------------------------
                                                    1,581,135      1,225,616
    -------------------------------------------------------------------------
                                                    3,097,047      2,723,954
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity    $ 5,644,039    $ 4,929,014
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SHOPPERS DRUG MART CORPORATION
    Consolidated Statements of Cash Flows
    (unaudited)
    (in thousands of dollars)

    -------------------------------------------------------------------------

                          12 Weeks Ended                52 Weeks Ended
                   ----------------------------------------------------------
                    December 29,   December 30,   December 29,   December 30,
                           2007           2006           2007           2006
    -------------------------------------------------------------------------

    Operating
     activities
      Net earnings  $   153,659    $   132,500    $   493,628    $   422,491
      Items not
       affecting cash
        Amortization     44,932         37,284        181,418        150,088
        Future income
         taxes            1,720            270         (6,433)        (9,235)
        (Gain) loss
         on disposal
         of property
         and
         equipment         (207)         3,568          4,165          7,185
        Stock-based
         compensation       581            951          3,544          3,492
    -------------------------------------------------------------------------
                        200,685        174,573        676,322        574,021
      Net change in
       non-cash
       working
       capital
       balances          10,894         54,746       (137,697)       (26,551)
      Increase in
       other long-
       term
       liabilities       16,227         17,260         48,464         38,990
      Store opening
       costs             (7,782)        (7,592)       (22,031)       (16,644)
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities         220,024        238,987        565,058        569,816
    -------------------------------------------------------------------------

    Investing
     activities
      Purchase of
       property and
       equipment       (146,700)      (114,994)      (395,526)      (287,216)
      Proceeds from
       disposition
       of property
       and equipment     11,220          2,982         18,014          3,269
      Business
       acquisitions
       (Note 3)         (18,759)       (10,721)      (139,833)       (93,866)
      Deposits
       (Note 3)         (18,873)             -        (93,688)             -
      Other assets         (668)         3,727         (1,714)        (3,570)
    -------------------------------------------------------------------------
    Cash flows used
     in investing
     activities        (173,780)      (119,006)      (612,747)      (381,383)
    -------------------------------------------------------------------------

    Financing
     activities
      Bank
       indebtedness,
       net              (21,757)       (36,803)        90,665        (29,359)
      Commercial
       paper, net         6,601        (15,200)        40,800         33,700
      Repayment of
       long-term debt         -         (2,025)             -        (27,025)
      Revolving term
       debt, net              -         (6,013)             -              -
      Deferred
       financing
       costs                  -             (2)           (20)          (454)
      Associate
       interest          10,531          9,374         (3,530)           148
      Proceeds from
       shares issued
       for stock
       options
       exercised          3,119            799         13,710         10,898
      Repayment of
       share
       purchase loans        30            167            325          2,287
      Repurchase of
       share capital          -              -            (29)       (41,789)
      Dividends paid    (34,657)       (25,781)      (129,509)       (98,498)
    -------------------------------------------------------------------------
    Cash flows
     (used in) from
     financing
     activities         (36,133)       (75,484)        12,412       (150,092)
    -------------------------------------------------------------------------
    Increase
     (decrease)
     in cash             10,111         44,497        (35,277)        38,341
    Cash, beginning
     of period           17,477         18,368         62,865         24,524
    -------------------------------------------------------------------------
    Cash, end of
     period         $    27,588    $    62,865    $    27,588    $    62,865
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental
     cash flow
     information
    Interest paid   $    17,875    $    15,111    $    50,596    $    48,075
    Income taxes
     paid           $   115,306    $    23,993    $   280,393    $   188,270
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SHOPPERS DRUG MART CORPORATION
    Notes to the Consolidated Financial Statements
    (unaudited)
    (in thousands of dollars except per share amounts)
    -------------------------------------------------------------------------

    1.  BASIS OF PRESENTATION

    The unaudited interim consolidated financial statements have been
    prepared in accordance with Canadian generally accepted accounting
    principles ("GAAP") and follow the same accounting policies and methods
    of application with those used in the preparation of the audited annual
    consolidated financial statements for the 52 week period ended
    December 30, 2006, except as described in Note 2, Changes in Accounting
    Policies. These financial statements do not contain all disclosures
    required by Canadian GAAP for annual financial statements and,
    accordingly, should be read in conjunction with the most recently
    prepared annual consolidated financial statements and the accompanying
    notes included in the Company's 2006 Annual Report.

    The consolidated financial statements include the accounts of Shoppers
    Drug Mart Corporation (the "Company"), its subsidiaries and entities
    considered to be variable interest entities, as defined by Accounting
    Guideline 15, "Consolidation of Variable Interest Entities" ("AcG-15").
    Under AcG-15, the Company has consolidated the Associate-owned stores and
    an independent trust.

    The individual Associate-owned stores that comprise the Company's store
    network are variable interest entities and the Company is the primary
    beneficiary. As such, the Associate-owned stores are subject to
    consolidation by the Company. The Associate-owned stores remain separate
    legal entities and consolidation of the Associate-owned stores has no
    impact on the underlying risks facing the Company.

    The Company has an arrangement with an independent trust (the "Trust") to
    provide loans to Associates to facilitate their purchase of inventory and
    fund their working capital requirements. The Trust's activities are
    financed through the issuance of short-term asset backed notes to third
    party investors. The Trust is a variable interest entity and the Company
    is the primary beneficiary. As such, the Trust is subject to
    consolidation by the Company.

    Comparative Amounts

    Certain comparative amounts have been reclassified to conform with the
    current period's financial statement presentation.

    2.  CHANGES IN ACCOUNTING POLICIES

    Financial instruments

    In 2006, the Canadian Institute of Chartered Accountings ("CICA") issued
    new accounting standards concerning financial instruments: Financial
    Instruments - Recognition and Measurement ("Section 3855"); Financial
    Instruments - Disclosure and Presentation ("Section 3861"), Hedges
    ("Section 3865"); and Comprehensive Income ("Section 1530"). The
    standards require prospective application and were effective for the
    Company's first quarter of fiscal 2007. The Company applied the new
    accounting standards at the beginning of its current fiscal year.

    Financial assets and liabilities

    Section 3855 establishes standards for recognizing and measuring
    financial instruments. Under the new standards, all financial instruments
    are classified into one of the following five categories: held for
    trading, held-to-maturity investments, loans and receivables, available-
    for-sale financial assets or other financial liabilities.

    The Company's financial assets and financial liabilities are classified
    and measured as follows:

    Asset/Liability              Category                        Measurement
    Cash                         Held for trading                 Fair value
    Accounts receivable          Loans and receivables        Amortized cost
    Long-term receivables(*)     Loans and receivables        Amortized cost
    Bank indebtedness            Held for trading                 Fair value
    Commercial paper             Other financial liabilities  Amortized Cost
    Accounts payable             Other financial liabilities  Amortized Cost
    Long-term debt               Other financial liabilities  Amortized Cost
    Other long-term liabilities  Other financial liabilities  Amortized Cost

    (*)included in other assets in the consolidated balance sheets

    Derivative and hedge accounting

    The Company's interest rate derivatives have been designated as cash flow
    hedges and reported at fair value, in accordance with the new standards,
    as a component of other assets. A percentage of the equity forward
    derivatives, related to unearned units under the LTIP, have been
    designated as a hedge. The fair value of the percentage of the equity
    derivatives designated as a hedge has been reflected in the opening
    balance of accumulated other comprehensive income, net of tax.

    The following table summarizes the impact on the Company's opening
    balance sheet for fiscal 2007 as a result of the adjustments relating to
    interest rate and equity forward derivatives:

                                                      Long-term
                                                      incentive
                                                       plan and  December 31,
                          December 30,    Interest       equity         2006
                         2006 balance,        rate      forward      opening
                          as reported   derivative   derivative      balance
    -------------------------------------------------------------------------
    Other assets          $     6,516  $       338  $       610  $     7,464

    Other long-term
     liabilities          $   188,938  $         -  $       234  $   189,172

    Future income
     taxes (within
     liabilities)         $    21,689  $       115  $       128  $    21,932

    Retained earnings     $ 1,225,616  $         -  $        66  $ 1,225,682

    Accumulated other
     comprehensive
     income               $         -  $       223  $       183  $       406
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In addition to the above adjustments, the Company has adopted the policy
    of adding transaction costs to financial assets and liabilities
    classified as other than "held for trading", as a result, the Company's
    deferred financing costs were reclassified to the debt balances to which
    they relate. As at December 31, 2006, the commercial paper balance was
    reduced by $707 of deferred financing costs and the long-term debt
    balance was reduced by $1,518 of deferred financing costs. As at
    December 29, 2007, the commercial paper balance was reduced by $503 of
    deferred financing costs and the long-term debt balance was reduced by
    $1,010 of deferred financing costs.

    The Company does not have any significant embedded features in
    contractual arrangements that required separate presentation from the
    related host contract.

    As a result of the implementation of these standards, the Consolidated
    Financial Statements include Consolidated Statements of Comprehensive
    Income and Accumulated Other Comprehensive Income, with the cumulative
    amount of other comprehensive income presented as a new category of
    shareholders' equity in the Consolidated Balance Sheets.

    The components of accumulated other comprehensive income as at
    December 29, 2007 are comprised as follows:

    Accumulated other comprehensive income:
      Unrealized gain on interest rate derivative (net of
       tax of $180)                                              $       247
      Unrealized gain on equity forward derivative (net of
       tax of $nil)                                                        -
    -------------------------------------------------------------------------
    Accumulated other comprehensive income                       $       247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Equity

    As a result of the issuance of guidance on financial instruments
    accounting, the CICA issued an amended accounting standard regarding
    Equity ("Section 3251"), which replaces Section 3250, Equity. The
    standard requires companies to disclose the impact of the new financial
    instruments accounting standards on equity within the Consolidated
    Balance Sheets and the Consolidated Statements of Retained Earnings. The
    standard requires prospective application and was effective for the
    Company's first quarter of fiscal 2007. The Company applied the new
    accounting standards at the beginning of its current fiscal year.

    3.  ACQUISITIONS

    Centre d'Escomptes Racine

    On September 25, 2007, the Company purchased the assets of the seven
    stores of Centre d'Escomptes Racine, a pharmacy chain in Québec. The
    total cost of the acquisition, including costs incurred in connection
    with the acquisition, was $77,077 and will be allocated among inventory,
    other assets, goodwill and other intangible assets. The purchase price
    allocation has not been completed and the full purchase price has been
    recorded in goodwill.

    The operations of the acquired stores have been included in the Company's
    results of operations from the date of acquisition.

    Funds held in escrow

    The Company had amounts held in escrow of $93,688 with respect to a
    number of offers to acquire certain pharmacies. These amounts are
    included in the balance of prepaid expenses and deposits as at
    December 29, 2007 (2006 - $nil).

    4.  INTEREST EXPENSE

    The significant components of the Company's interest expense are as
    follows:

                               12 Weeks Ended            52 Weeks Ended
                         ----------------------------------------------------
                          December 29, December 30, December 29, December 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Interest on bank
     indebtedness         $     2,904  $     1,478  $    10,887  $     7,629
    Interest on
     commercial paper           8,343        6,200       27,593       24,902
    Interest on long-
     term debt                  2,773        3,042       13,679       15,719
    Amortization of
     deferred financing
     costs                        165          175          714        1,622
    -------------------------------------------------------------------------
                          $    14,185  $    10,895  $    52,873  $    49,872
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5.  EMPLOYEE FUTURE BENEFITS

    The net benefit expense included in the results for the 12 and 52 week
    periods ended December 29, 2007 for benefits provided under pension plans
    was $1,041 and $6,154 (2006 - $1,523 and $6,604), respectively, and for
    benefits provided under other benefit plans was $594 and $671 (2006 -
    $534 and $637), respectively.

    6.  STOCK-BASED COMPENSATION

    The Company uses the fair value method to account for stock options
    issued after 2002 under its stock option programs. If compensation
    expense under the fair value method of accounting had been recognized on
    stock options issued in 2002, the Company's net earnings for the 12 and
    52 week periods ended December 29, 2007 would have been reduced by $2 and
    $176 (2006 - $86 and $582), respectively. For the 12 and 52 week periods
    ended December 29, 2007 and December 30, 2006, basic earnings per share
    and diluted earnings per share would have been unchanged.

    For a description of the Company's stock option programs, see Note 11 to
    the consolidated financial statements in the Company's 2006 Annual
    Report.

    7.  FINANCING TRUST

    The Company has arranged for a standby letter of credit from a syndicate
    of banks for the benefit of the Trust that is equal to approximately 10%
    of the aggregate principal amount of the loans, or $50,000, as a form of
    credit enhancement which, in turn, enables the Trust to provide
    favourable financing terms to the Company's Associates.

    As at December 29, 2007, $499,350 (2006 - $453,550) of the consolidated
    commercial paper balance is commercial paper issued by the Trust.

    Earnings Coverage Exhibit to the Consolidated Financial Statements

    52 Weeks Ended December 29, 2007
    -------------------------------------------------------------------------
    Earnings coverage on long-term debt obligations              57.75 times
    -------------------------------------------------------------------------

    The earnings coverage ratio on long-term debt (including any current
    portion) is equal to earnings (before interest and income taxes) divided
    by interest expense on long-term debt (including any current portion).
    Interest expense excludes any amounts in respect of amortization that
    were included in interest expense as shown in the consolidated statement
    of earnings of the Company for the period.
    

    %SEDAR: 00016987EF




For further information:

For further information: Media Contact: Tammy Smitham, Director,
Communications & Corporate Affairs, (416) 490-2892, or
corporateaffairs@shoppersdrugmart.ca, (416) 493-1220, ext. 5500; Investor
Relations: (416) 493-1220, ext. 5678, investorrelations@shoppersdrugmart.ca


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