Press Releases

Shoppers Drug Mart Corporation announces strong fourth quarter and full year results - increases quarterly dividend payments by 33 percent

Feb 8, 2007

TORONTO, Feb. 8 /CNW/ - Shoppers Drug Mart Corporation (TSX: SC) today
announced its unaudited financial results for the fourth quarter and fiscal
year ended December 30, 2006. The Company also announced that its Board of
Directors has declared a dividend of 16 cents per common share, payable
April 13, 2007 to shareholders of record as of the close of business on
March 30, 2007. This represents an increase in its quarterly dividend payments
of 33%, resulting in an annualized dividend payment of 64 cents per common
share.

Fourth Quarter Results (12 Weeks)

Fourth quarter sales increased 10.1% to $2.018 billion, with the Company
once again experiencing strong sales growth in all regions of the country. On
a same-store basis, sales increased 6.5% during the fourth quarter of 2006.
Market share gains, strong seasonal programs and the addition of new real
estate, combined with the Company's third quarter acquisition of MediSystem
Technologies Inc., drove this top-line growth.
Prescription sales increased 11.4% in the fourth quarter to $897 million,
accounting for 44.4% of the Company's sales mix compared to 43.9% in the same
period last year. On a same-store basis, prescription sales increased 8.2%,
with increased generic prescription utilization continuing to temper the
inflationary impact on prescription sales growth.
Front store sales increased 9.0% to $1.121 billion in the fourth quarter,
with the Company continuing to experience sales gains in all core categories.
On a same-store basis, front store sales increased 5.1% during the fourth
quarter of 2006.
Strong top-line growth, an enhanced sales mix and an on-going commitment
to cost reduction, all contributed to growth in net earnings. Fourth quarter
net earnings increased 15.1% to $133 million or 61 cents per share (diluted)
from $115 million or 53 cents per share (diluted) a year ago.
Commenting on the fourth quarter results, Jurgen Schreiber, President and
COO stated, "We are pleased with our performance in the fourth quarter. It was
a strong finish to another good year, leaving us well-positioned heading into
2007."
Commenting on the full year results, Glenn Murphy, Chairman and CEO
stated, "We are proud of what our Associate-owners and their teams
accomplished in 2006. Their commitment to operational excellence, combined
with a focus on providing superior customer service and patient care, resulted
in another year of solid growth in sales and net earnings." In reference to
the dividend increase, Mr. Murphy went on to say, "This increase in the
dividend and step-up in the payout ratio is a reflection of the strength of
our business model and our confidence in the Company's ability to generate
continued growth in net earnings and cash flow."

Fiscal 2006 Results (52 Weeks)

Sales for fiscal 2006 increased 8.9% to $7.786 billion, with prescription
sales up 9.5% to $3.655 billion and front store sales up 8.3% to
$4.131 billion. On a same-store basis, sales increased 6.5%, with prescription
sales up 7.9% and front store sales up 5.3%. In fiscal 2006, prescription
sales accounted for 46.9% of the Company's sales mix compared to 46.7% in the
prior year.
Net earnings for fiscal 2006 increased 15.9% to $422 million or $1.95 per
share (diluted) from $364 million or $1.69 per share (diluted) in the prior
year.

Store Network Development

During the fourth quarter of 2006, 40 drug stores were opened or
acquired, 24 of which were relocations, and three drug stores were closed. For
the fiscal year ended December 30, 2006, the Company opened or acquired 95
drug stores, 48 of which were relocations, and closed 10 stores. The Company
also opened six home health care stores during the fourth quarter of 2006, two
of which were relocations. At year-end, there were 1,045 stores in the system,
comprised of 987 drug stores and 58 Shoppers Home Health Care stores. During
2006, the selling square footage of the store network increased by 10.6%, to
8.7 million square feet at year end. Sales per square foot (annualized) were
$975 at the end of fiscal 2006.

2006 Annual Report

The Company's audited consolidated financial statements for the year
ended December 30, 2006 will be available on or before March 30, 2007.
Management's Discussion and Analysis for the year ended December 30, 2006,
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 30, 2007. Both documents will be
contained in the Company's 2006 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.

Fiscal 2007 Outlook (52 Weeks Ending December 29, 2007)

The Company expects total sales to increase by between 9.0% and 10.0% in
fiscal 2007. This expectation is underpinned by same-store sales growth of
between 6.0% and 7.0% in pharmacy and 4.5% to 5.5% in the front store. It is
the Company's expectation that comparable prescription sales growth will once
again be driven by solid growth in prescription counts, with drug price
inflation not being a significant factor.
The Company plans to allocate approximately $400 million to capital
expenditures in 2007, with approximately 80% of this amount being invested in
the store network, including acquisitions and land. This should result in an
increase in selling square footage of more than 10%. This will be accomplished
through the addition of between 110 and 120 new drug stores, approximately 50
of which will be relocations, and through the completion of between 10 and 15
major expansions. The capital program will once again be funded entirely 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.
The Company is confident in its ability to execute upon its operating,
investing and financing strategies in fiscal 2007 and beyond. The Company
believes that the appropriate balance and successful implementation of these
strategies and initiatives will result in long-term market share gains, while
delivering consistent and meaningful growth in earnings per share. This in
turn should provide superior returns to the Company's shareholders, through a
combination of share price appreciation and dividends, which are sustainable
over time.

Board of Directors

The Company announced today that its Board of Directors has selected
David Williams to be the non-executive Chair of the Board effective the end of
March when Mr. Murphy's resignation as Chairman and Chief Executive Officer
will take effect. Mr. Williams joined the Board of Directors of Shoppers Drug
Mart in September 2003. He served as a member of the Company's Audit Committee
from November 2003 until May 2006, at which time he joined the Company's newly
reconstituted Nominating & Governance Committee. In the fall of 2005, Mr.
Williams was named the Company's first Lead Director.
Mr. Williams recently retired as President and Chief Executive Officer of
the Ontario Workplace Safety and Insurance Board. Prior to that, he held
senior executive roles with Loblaw Companies Limited where he was instrumental
in the development of their retail franchise business. Mr. Williams is a
graduate of the ICD Corporate Governance College.
The Company also announced today that it has appointed Jurgen Schreiber,
currently President and Chief Operating Officer of the Company, to the Board
of Directors effective at the end of March when he becomes President and Chief
Executive Officer of the Company.
Another change announced was the resignation of Dean Metcalf, Shoppers
Drug Mart's longest serving director, who joined the Board in 2000 when the
Company was a private entity. The Board expressed their appreciation for Mr.
Metcalf's contributions over the past seven years.
Finally, the Company also announced that it has appointed Gaetan Lussier
to the Board of Directors to replace a director who resigned last October. Mr.
Lussier was President of Culinar Inc. from 1994 to 1999 and was President of
Weston Bakeries Limited in Québec from 1988 to 1994. Prior to that, Mr.
Lussier served as Deputy Minister of Agriculture in both the Québec and
federal governments, as well as Deputy Minister for Employment & Immigration
Canada. He was also the Founding Chairman of the Canadian Agri-Food Policy
Institute. Mr. Lussier currently acts as a consultant to various companies and
was awarded the Order of Canada in 1981.

Other Information

The Company will hold an analyst call at 3:00 p.m. (Eastern Standard
Time) today to discuss its fourth quarter results and its outlook for fiscal
2007. 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 22, 2007. The call playback can
be accessed after 5:00 p.m. (Eastern Standard Time) on Thursday, February 8,
2007 by dialing 416-695-5800 from within the Toronto area, or 1-800-408-3053
outside of Toronto. The seven-digit passcode number is 3209603.
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 985 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 58
Shoppers Home Health Care stores, making it the largest Canadian retailer of
home health care products and services.

This news release contains forward-looking statements 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. These forward-looking
statements are based on certain assumptions by management, certain of which
are set out in this news release. Inherent in these forward-looking 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 these statements depending on,
among others, such factors as changes in the regulatory environment as it
relates to the sale of prescription drugs, competition from other retailers,
exposure to interest rate fluctuations, foreign currency risks, certain
property and casualty risks, the ability to attract and retain pharmacists,
risks in connection with third party service providers, the availability of
suitable store locations, seasonality risks, changes in federal and provincial
laws, rules and regulations relating to the Company's business and
environmental matters, changes in tax regulations and accounting
pronouncements, the success of the Company's Associate-owned stores, supplier
and brand reputations and the accuracy of management's assumptions. This list
is not exhaustive of the factors that may affect any of the Company's
forward-looking statements. Investors and others should carefully consider
these and other factors and not place undue reliance on these forward-looking
statements. Further information regarding these and other 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 31, 2005 and in the section entitled "Risk
Factors" in the Company's Annual Information Form for the same period. The
forward-looking statements contained in this news release represent the
Company's views only as of the date of this release. 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
statements.

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 30, December 31, December 30, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------

Sales $ 2,018,067 $ 1,833,327 $ 7,786,436 $ 7,151,115
Operating expenses
Cost of goods sold
and other operating
expenses 1,771,151 1,620,992 6,958,361 6,430,933
Amortization 38,083 29,661 144,549 120,937
-------------------------------------------------------------------------

Operating income 208,833 182,674 683,526 599,245

Interest expense
(Note 3) 10,895 10,323 49,872 48,649
-------------------------------------------------------------------------

Earnings before
income taxes 197,938 172,351 633,654 550,596

Income taxes
Current 65,168 53,296 220,398 177,197
Future 270 3,930 (9,235) 8,905
-------------------------------------------------------------------------
65,438 57,226 211,163 186,102
-------------------------------------------------------------------------
Net earnings $ 132,500 $ 115,125 $ 422,491 $ 364,494
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net earnings per
common share:

Basic $ 0.62 $ 0.54 $ 1.97 $ 1.72
Diluted $ 0.61 $ 0.53 $ 1.95 $ 1.69

Weighted average
common shares
outstanding
- Basic (millions) 214.8 212.4 213.9 211.8
- Diluted (millions) 216.9 216.4 216.7 216.1
Actual common shares
outstanding (millions) 215.0 213.4 215.0 213.4

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

52 Weeks Ended
-------------------------
December 30, December 31,
2006 2005
-------------------------------------------------------------------------

Retained earnings, beginning of period $ 941,672 $ 662,437
Net earnings 422,491 364,494
Premium on common shares purchased for
cancellation (Note 8) (35,595) (13)
Dividends (102,952) (85,246)
-------------------------------------------------------------------------
Retained earnings, end of period $ 1,225,616 $ 941,672
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

December 30, December 31,
2006 2005
-------------------------------------------------------------------------

Assets

Current
Cash $ 62,865 $ 24,524
Accounts receivable 307,779 256,504
Inventory 1,372,124 1,216,549
Future income taxes 46,407 38,316
Prepaid expenses 32,248 29,018
-------------------------------------------------------------------------
1,821,423 1,564,911

Property and equipment 907,728 748,840
Deferred costs 25,936 21,562
Goodwill 2,122,162 2,019,499
Other intangible assets 45,249 17,625
Other assets 6,516 2,946
-------------------------------------------------------------------------
Total assets $ 4,929,014 $ 4,375,383
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities

Current
Bank indebtedness $ 134,487 $ 163,503
Commercial paper 503,550 469,850
Accounts payable and accrued liabilities 843,278 697,945
Income taxes payable 70,672 39,860
Dividends payable 25,797 21,343
-------------------------------------------------------------------------
1,577,784 1,392,501

Long-term debt 300,000 325,000
Other long-term liabilities 188,938 140,758
Future income taxes 21,689 14,115
-------------------------------------------------------------------------
2,088,411 1,872,374
-------------------------------------------------------------------------

Associate interest 116,649 116,501

Shareholders' equity

Share capital 1,491,264 1,441,254
Contributed surplus 7,074 3,582
Retained earnings 1,225,616 941,672
-------------------------------------------------------------------------
2,723,954 2,386,508
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,929,014 $ 4,375,383
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

12 Weeks Ended 52 Weeks Ended
------------------------- -------------------------
December 30, December 31, December 30, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------

Operating activities
Net earnings $ 132,500 $ 115,125 $ 422,491 $ 364,494
Items not affecting
cash
Amortization 37,284 31,799 150,088 128,530
Future income taxes 270 3,930 (9,235) 8,905
Loss on disposal of
property and
equipment 3,568 777 7,185 4,283
Stock-based
compensation 951 389 3,492 1,941
-------------------------------------------------------------------------
174,573 152,020 574,021 508,153
Net change in
non-cash working
capital balances
(Note 2) 54,746 (3,072) (26,551) (89,352)
Increase in other
long-term liabilities 19,498 13,411 48,180 44,032
Store opening costs (7,592) (4,200) (16,644) (12,258)
-------------------------------------------------------------------------
Cash flows from
operating activities 241,225 158,159 579,006 450,575
-------------------------------------------------------------------------

Investing activities
Purchase of property
and equipment (114,250) (86,055) (293,137) (249,973)
Business acquisition
- MediSystem
(excluding shares
exchanged of $43,019
- Note 2) (42) - (46,850) -
Other business
acquisitions (Note 2) (10,679) (2,744) (47,016) (24,540)
Other assets 3,727 65 (3,570) 331
-------------------------------------------------------------------------
Cash flows used in
investing activities (121,244) (88,734) (390,573) (274,182)
-------------------------------------------------------------------------

Financing activities
Bank indebtedness, net (36,803) (1,345) (29,359) (39,229)
Commercial paper, net (15,200) 25,125 33,700 166,675
Repayment of
long-term debt - (75,000) (25,000) (250,000)
Repayment of long-term
debt assumed on
acquisition of
MediSystem (2,025) (2,025) -
Revolving term
debt, net (6,013) - - (4,943)
Deferred financing
costs (2) - (454) -
Associate interest 9,374 7,998 148 6,134
Shares issued for
stock options
exercised 799 599 10,898 17,797
Repayment of share
purchase loans 167 49 2,287 1,480
Repurchase of
share capital - (16) (41,789) (16)
Dividends paid (25,781) (21,318) (98,498) (63,903)
-------------------------------------------------------------------------
Cash flows used in
financing activities (75,484) (63,908) (150,092) (166,005)
-------------------------------------------------------------------------
Increase in cash 44,497 5,517 38,341 10,388
Cash, beginning of
period 18,368 19,007 24,524 14,136
-------------------------------------------------------------------------
Cash, end of period $ 62,865 $ 24,524 $ 62,865 $ 24,524
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental cash
flow information
Interest paid $ 15,111 $ 12,805 $ 48,075 $ 47,666
Income taxes paid $ 23,993 $ 28,779 $ 188,270 $ 191,232

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 31, 2005. 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 2005 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.

2. ACQUISITIONS

MediSystem Technologies Inc.

During the year, the Company acquired 100% of the outstanding common
shares of MediSystem Technologies Inc. ("MediSystem") through a series of
transactions. MediSystem provides pharmaceutical products and services to
long-term care facilities in Ontario and Alberta. MediSystem results of
operations have been included in the Company's results of operations
subsequent to September 20, 2006.

The total cost of the acquisition, including costs incurred in connection
with the acquisition, was $91,274 and was allocated to the net assets on
the basis of their fair value as follows:

Net working capital $ 2,986
Property and equipment 4,551
Goodwill 67,936
Other intangible assets 25,865
Long-term debt (2,025)
Future income taxes (8,039)
-------------------------------------------------------------------------
Purchase price 91,274
Less: Cash included in working capital (1,405)
-------------------------------------------------------------------------
Purchase price, net of cash acquired $ 89,869
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash and acquisition costs, net of cash acquired $ 46,850
926,735 Common shares of Shoppers Drug Mart Corporation 43,019
-------------------------------------------------------------------------
Purchase price, net of cash acquired $ 89,869
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The acquired intangible assets subject to amortization consist of the
following:

Developed technology $ 1,065
Customer relationships 24,600
Other 200
-----------------------------------------------------------------
$ 25,865
-----------------------------------------------------------------
-----------------------------------------------------------------

Since this acquisition was completed late in 2006, the Company's
determination of the fair values of the individual assets and liabilities
acquired is preliminary and may change.

Other Business Acquisitions

Other business acquisitions include the acquisition of Therapy Supplies &
Rental Ltd. for $19,017. Since this acquisition was completed late in
2006, the Company's determination of the fair values of the individual
assets and liabilities is preliminary and may change.

3. INTEREST EXPENSE

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

12 Weeks Ended 52 Weeks Ended
------------------------- -------------------------
December 30, December 31, December 30, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------

Interest on bank
indebtedness $ 1,478 $ 1,788 $ 7,629 $ 6,700
Interest on commercial
paper 6,200 3,889 24,902 18,326
Interest on long-term
debt 3,042 4,056 15,719 21,066
Amortization of
deferred financing
costs 175 590 1,622 2,557
-------------------------------------------------------------------------
$ 10,895 $ 10,323 $ 49,872 $ 48,649
-------------------------------------------------------------------------
-------------------------------------------------------------------------

4. LONG-TERM DEBT

On June 6, 2006 the Company amended its $300,000 364-day extendible
revolving credit facility and its $250,000 revolving term facility into
one $550,000 revolving term facility and extended the maturity until
June, 2011.

5. EMPLOYEE FUTURE BENEFITS

The net benefit expense included in the results for the 12 and 52 week
periods ended December 30, 2006 for benefits provided under pension plans
was $1,523 and $6,604 (2005 - $1,207 and $5,229), respectively, and for
benefits provided under other benefit plans was $534 and $637
(2005 - $522 and $602), 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 30, 2006 would have been reduced by
$86 and $582 (2005 - $191 and $1,176), respectively. For the 12 and
52 week periods ended December 30, 2006, basic earnings per share and
diluted earnings per share would have been unchanged. For the 12 week
period ended December 31, 2005, basic earnings per share and diluted
earnings per share would have been unchanged. For the 52 week period
ended December, 2005, basic earnings per share would have been unchanged
and diluted earnings per share would have been $1.68.

For a description of the Company's stock option programs, see Note 11 to
the consolidated financial statements in the Company's 2005 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 independent trust ("Trust") that is equal
to approximately 10% of the aggregate principal amount of the loans, or
$45,500, 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 30, 2006, $453,550 (2005 - $419,850) of the consolidated
commercial paper balance is commercial paper issued by the Trust.

8. NORMAL COURSE ISSUER BID

On September 8, 2006 the Company implemented a normal course issuer bid
to repurchase for cancellation up to 5,350,000 common shares,
representing approximately 2.5% of the Company's outstanding common
shares, over a 12-month period ending no later than September 7, 2007.
Repurchases are made at market prices through the Toronto Stock Exchange.

From September 8, 2006 to December 30, 2006, the Company purchased for
cancellation 913,600 common shares under the normal course issuer bid at
a cost of $41,780, none of which took place in the 12 week period ended
December 30, 2006. The premium paid over the average book value of the
shares repurchased has been charged to retained earnings.

9. LONG-TERM INCENTIVE PLAN

During the first quarter, the Company issued awards under a long-term
incentive plan ("LTIP") to certain employees. Under the LTIP, the
employees are eligible to receive an award of share units equivalent in
value to common shares of the Company. On February 17, 2006, the Company
awarded 147,403 share units which vest equally over a three year period,
of which 138,564 were outstanding as at December 30, 2006. The Company
has recorded compensation expense of $772 and $3,308 for the 12 and 52
week periods ended December 30, 2006, respectively, associated with the
share units.

In order to limit the Company's exposure to future share price changes,
the Company has entered into an agreement with a counterparty to use a
cash-settled equity forward contract to hedge this exposure. The Company
has designated this derivative instrument as a hedge for accounting
purposes.

10. FINANCIAL INSTRUMENTS

Interest rate derivatives

In December 2005, the Company entered into interest rate derivative
agreements converting an aggregate notional principal amount of $250,000
of floating rate commercial paper debt issued by the Trust into fixed
rate debt. The fixed rates payable by the Company under these agreements
ranged from 4.03% to 4.18%. These agreements mature as follows: $150,000
in December 2008, $50,000 in December 2009 and $50,000 in December 2010
with reset terms from 1 to 3 months to match the maturities of the
underlying issued commercial paper.

Based on market values at December 30, 2006, the Company would have
realized gains of $338 to terminate these interest rate derivative
agreements. Market values were determined based on information received
from the Company's counterparties to these agreements.

Equity forward derivative

The Company uses a cash-settled equity forward contract to limit its
exposure to future price changes in the Company's share price for share
unit awards under the Company's long-term incentive plan ("LTIP"). The
income and expense arising from the use of this instrument is included in
cost of goods sold and other operating expense for the year.

Based on market values at December 30, 2006, the Company would have
realized a gain of $610 to terminate the cash-settled equity forward
contract. Market values were determined based on information received
from the Company's counterparties to these agreements.

Earnings Coverage Exhibit to the Consolidated Financial Statements

52 Weeks Ended December 30, 2006
-------------------------------------------------------------------------
Earnings coverage on long-term debt obligations 43.48 times
-------------------------------------------------------------------------

The earnings coverage ratio on long-term debt (including any current
portion) is equal to net 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: Media Contact: (416) 493-1220, ext. 5500, corporateaffairs@shoppersdrugmart.ca; Investor Relations: (416) 493-1220, ext. 5678, investorrelations@shoppersdrugmart.ca


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