Financial Statements of - Shoppers Drug Mart
Financial Statements of - Shoppers Drug Mart
Financial Statements of - Shoppers Drug Mart
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SHOPPERS DRUG MART CORPORATION<br />
Notes to the Consolidated <strong>Financial</strong> <strong>Statements</strong><br />
(unaudited)<br />
(in thousands <strong>of</strong> Canadian dollars, except per share data)<br />
4. DETERMINATION OF FAIR VALUES (continued)<br />
(f) Share-based Payment Transactions<br />
The grant date fair values <strong>of</strong> stock options granted to employees are measured using the Black-<br />
Scholes option-pricing model (the “model”). Measurement inputs to the model include share price on<br />
measurement date, exercise price <strong>of</strong> the instruments, expected volatility, weighted average expected<br />
life <strong>of</strong> the instruments (based on historical experience and general option holder behaviour), expected<br />
dividends and the risk-free interest rate (based on government bonds). The fair value <strong>of</strong> the amount<br />
payable to employees in respect <strong>of</strong> cash-settled share-based payments is measured based on the<br />
Company’s common share price.<br />
5. BUSINESS ACQUISITIONS<br />
In the normal course <strong>of</strong> business, the Company acquires the assets or shares <strong>of</strong> pharmacies. The total cost<br />
<strong>of</strong> these acquisitions during the 12 weeks ended March 26, 2011 <strong>of</strong> $6,265 (2010: $9,833) was allocated<br />
primarily to goodwill and other intangible assets based on their fair values. The goodwill acquired<br />
represents the benefits the Company expects from the acquisitions. The Company expects that $38 (2010:<br />
$6,410) <strong>of</strong> acquired goodwill will be deductible for tax purposes.<br />
The values <strong>of</strong> assets acquired and liabilities assumed have been valued at the acquisition date, generally<br />
using fair values. See Note 4 to these consolidated financial statements for the methods used in<br />
determining fair values. The intangible assets acquired are composed <strong>of</strong> prescription files. In<br />
determining the fair value <strong>of</strong> prescription files acquired, the Company applied a pre-tax discount rate <strong>of</strong> 9<br />
percent (2010: 8 percent) to the estimated expected future cash flows.<br />
The Company incurred acquisition-related costs <strong>of</strong> $5 (2010: $nil), representing primarily legal fees.<br />
These acquisition-related costs have been included in net earnings, in operating and administrative<br />
expenses for the 12 weeks ended March 26, 2011 and March 27, 2010.<br />
The operations <strong>of</strong> the acquired pharmacies have been included in the Company’s results <strong>of</strong> operations<br />
from the date <strong>of</strong> acquisition.<br />
6. COST OF GOODS SOLD<br />
During the 12 weeks ended March 26, 2011, the Company recognized $10,726 (2010: $9,656) <strong>of</strong> writedowns<br />
<strong>of</strong> inventory as a result <strong>of</strong> net realizable value being lower than cost in cost <strong>of</strong> goods sold in the<br />
consolidated statements <strong>of</strong> earnings.<br />
During the 12 weeks ended March 26, 2011 and March 27, 2010, the Company did not reverse any<br />
significant inventory write-downs recognized in previous periods.<br />
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