Financial Statements of - Shoppers Drug Mart

SHOPPERS DRUG MART CORPORATION
Notes to the Consolidated Financial Statements
(unaudited)
(in thousands of Canadian dollars, except per share data)
11. SHARE-BASED PAYMENTS (continued)
The following assumptions were used in the Black-Scholes option-pricing model to calculate the fair
value for those options granted during the 12 weeks ended March 26, 2011 and March 27, 2010:
2011 2010
Fair value per unit at grant date $ 6.32 $ 6.94
Share price $ 40.81 $ 44.09
Exercise price $ 40.81 $ 44.09
Valuation assumptions:
Expected life 5 years 5 years
Expected dividends 2.45% 2.10%
Expected volatility (based on historical share price volatility) 19.32% 18.70%
Risk-free interest rate (based on government bonds) 2.63% 2.54%
Upon the termination of an option holder’s employment, all unexercisable options expire immediately and
exercisable options expire within 180 days of the date of termination. The plan provides that the
Company may pay, in cash, certain terminated option holders the appreciated value of the options to
cancel exercisable options.
Subject to certain prior events of expiry, such as termination of employment for cause, all exercisable
options expire on the seventh anniversary of the date of grant.
Long-term Incentive Plan
During the 12 weeks ended March 26, 2011 and March 27, 2010, the Company did not award any share
units under the Company’s long-term incentive plan (“LTIP”). During the 12 weeks ended March 26,
2011, the Company cancelled 18,289 share units under the LTIP (2010: nil) as a result of the departure of
certain management personnel.
As at March 26, 2011, there were 91,657 share units (2010: 278,866 share units) outstanding under the
LTIP.
During the 12 weeks ended March 26, 2011, the Company recognized compensation expense of $64
(2010: $559) associated with the LTIP share units outstanding and reversed compensation expense of
$537 (2010: $nil), the latter as a result of the cancellation of previously granted share units under the
LTIP.
As at March 26, 2011, the liability associated with the share units under the LTIP is recorded in accounts
payable and accrued liabilities and is carried at the market value of the Company’s shares at the end of the
12-week period (2010: recorded in accounts payable and accrued liabilities and other long-term
liabilities).
The Company entered into a cash-settled equity forward agreement, which matures in December 2011, to
limit its exposure to future price changes in the Company’s share price for share unit awards.
A percentage of the equity forward derivatives, related to unearned share units under the LTIP, has been
designated as a hedge.
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