-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MLl5DjyjEKGSFDS6NIyn6bQ0IZw7puOjMPgwI0QaezH5oOl4XAadFtPom9FYLEKH BsHSS6hEqBHdz+a0yxDK3A== 0000940944-01-500072.txt : 20010817 0000940944-01-500072.hdr.sgml : 20010817 ACCESSION NUMBER: 0000940944-01-500072 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20010527 FILED AS OF DATE: 20010816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DARDEN RESTAURANTS INC CENTRAL INDEX KEY: 0000940944 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 593305930 STATE OF INCORPORATION: FL FISCAL YEAR END: 0526 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13666 FILM NUMBER: 1716538 BUSINESS ADDRESS: STREET 1: 5900 LAKE ELLENOR DR CITY: ORLANDO STATE: FL ZIP: 32809 BUSINESS PHONE: 4072454000 MAIL ADDRESS: STREET 1: 5900 LAKE ELLENOR DRIVE CITY: ORLANDO STATE: FL ZIP: 32809 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL MILLS RESTAURANTS INC DATE OF NAME CHANGE: 19950313 10-K 1 form10k_052701.txt FORM 10-K FY01 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 - ----------------------------------------------------------------------- FORM 10-K - ----------------------------------------------------------------------- (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 27, 2001 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ____________ Commission File Number: 1-13666 DARDEN RESTAURANTS, INC. (Exact name of registrant as specified in its charter) Florida 59-3305930 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5900 Lake Ellenor Drive 32809 Orlando, Florida (Zip Code) (Address of principal executive offices) (407) 245-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, without par value New York Stock Exchange and Preferred Stock Purchase Rights Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $31.84 per share as reported on the New York Stock Exchange on July 23, 2001: $3,746,044,583. Number of shares of Common Stock outstanding as of July 23, 2001: 117,652,154 (excluding 52,459,185 shares held in the Company's treasury). DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement dated August 15, 2001 are incorporated by reference into Part III, and portions of the Registrant's 2001 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV of this Report. PART I Item 1. BUSINESS Introduction Darden Restaurants, Inc. and its subsidiaries (the "Company" or "Darden") is the largest publicly held Casual Dining restaurant company in the United States.* As of May 27, 2001, the Company operated 1,131 restaurants in 49 states (the exception being Alaska), including 629 Red Lobster(R), 472 Olive Garden(R), 21 Bahama Breeze(R), and nine Smokey Bones(R) BBQ Sports Bar restaurants. In addition, the Company operated 37 restaurants in Canada, including 32 Red Lobster and five Olive Garden restaurants. The Company also operated one Olive Garden Cafe(R) in the United States as of May 27, 2001. The Company operates all of its North American restaurants. In Japan, as of May 27, 2001, Red Lobster Japan Partners, a Japanese retailer unaffiliated with Darden, operated 34 Red Lobster restaurants pursuant to an Area Development and Franchise Agreement. The Company, a Florida corporation incorporated in March 1995, is the parent company of GMRI, Inc., a Florida corporation ("GMRI"). GMRI and other Darden subsidiaries own the operating assets of the restaurants. GMRI was originally incorporated on March 27, 1968, as Red Lobster Inns of America, Inc. The Company's principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407) 245-4000. Unless the context indicates otherwise, all references to Darden or the Company include Darden, GMRI and their respective subsidiaries. Background The Company opened its first restaurant, a Red Lobster, in Lakeland, Florida in 1968. Red Lobster was founded by William B. Darden, for whom the Company is named. The Company was acquired by General Mills, Inc. ("General Mills") in 1970. In May 1995, the Company became a separate publicly held company when General Mills distributed all outstanding Darden stock to General Mills's stockholders (the "Distribution"). Following a period during which the Company focused on market optimization and the closing of under-performing units, the Company's two largest restaurant chains have recently resumed growth in the number of restaurants. The number of Red Lobster and Olive Garden restaurants open at fiscal year end 2001 increased by seven and eight, respectively, as compared to fiscal year end 2000. Red Lobster has grown from six restaurants in operation in 1970 to 661 units in North America by the end of fiscal 2001. Olive Garden, an internally developed concept, opened its first restaurant in 1982, and by the end of fiscal 2001 had expanded to 477 restaurants and one food court cafe in North America. Bahama Breeze is an internally developed concept with a Caribbean theme. In 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At the end of fiscal 2001, there were 21 Bahama Breeze restaurants. The Company's newest restaurant concept is Smokey Bones BBQ Sports Bar ("Smokey Bones"), an internally developed concept. The first restaurant was opened in 1999 in Orlando, Florida. At the end of fiscal 2001, there were nine Smokey Bones restaurants. In June 2001, the Company announced that it will begin national expansion of Smokey Bones. The table on the following page shows the Company's growth and lists the number of restaurants operated by Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones as of the end of each fiscal year since 1970. The final column in the table lists the Company's total sales for the years indicated. - --------------------- *Source: Nations's Restaurant News, "Top 100 Companies Ranked by U.S. Foodservice Revenues," June 25, 2001 (based on revenues from company owned restaurants). 1 Company-Operated Restaurants Open at Fiscal Year End
Fiscal Red Olive Bahama Smokey Total Total Company Sales Year Lobster Garden (1) Breeze Bones Restaurants (2) (In Millions) (3) ---- ------- ---------- ------ ----- --------------- ----------------- 1970 6 6 $3.5 1971 24 24 9.1 1972 47 47 27.1 1973 70 70 48.0 1974 97 97 72.6 1975 137 137 108.5 1976 174 174 174.1 1977 210 210 229.2 1978 236 236 291.4 1979 244 244 337.5 1980 260 260 397.6 1981 291 291 528.4 1982 328 328 614.3 1983 360 1 361 718.5 1984 368 2 370 782.3 1985 372 4 376 842.2 1986 401 14 415 917.3 1987 433 52 485 1,097.7 1988 443 92 535 1,300.8 1989 490 145 635 1,621.5 1990 521 208 729 1,927.7 1991 568 272 840 2,212.3 1992 619 341 960 2,542.0 1993 638 400 1,038 2,737.0 1994 675 458 1,133 2,963.0 1995 715 477 1,192 3,163.3 1996 729 487 1 1,217 3,191.8 1997 703 477 2 1,182 3,171.8 1998 682 466 3 1,151 3,287.0 1999 669 464 6 1,139 3,458.1 2000 654 469 14 2 1,139 3,701.3 2001 661 477 21 9 1,168 4,021.2 - ---------------------------- (1) Does not include Olive Garden Cafe restaurants. (2) Includes only Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones restaurants. Does not include other restaurant concepts operated by the Company in the years reported that are no longer in operation. (3) Includes total sales from all company operations, including sales from restaurant concepts besides Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones that are no longer in operation.
Strategy The restaurant industry is generally considered to be comprised of four segments: Quick Service, Midscale, Casual Dining and Fine Dining. The industry is highly fragmented and includes many independent operators and small chains. The Company believes that capable operators of strong multi-unit concepts will have the opportunity to increase their share of the Casual Dining segment. 2 The Company is a leader in the Casual Dining segment and is committed to the following three strategic building blocks: o leadership development as a core competency; o service and hospitality excellence; and o culinary and beverage excellence. The Company supports these three strategic imperatives with its continuing commitment to diversity literacy and technology literacy. The Company believes that its continuing focus on these three building blocks, supported by its commitment to diversity and technology, provides a strong foundation for future growth. The Company plans to grow by increasing the number of restaurants in each of its existing concepts and by developing or acquiring additional concepts that can be expanded profitably. Restaurant Concepts Red Lobster Red Lobster is the largest Casual Dining, seafood-specialty restaurant operator it the United States. It offers an extensive menu featuring fresh fish, shrimp, crab, lobster, scallops, and other seafood in a casual atmosphere. The menu includes a variety of specialty seafood and non-seafood appetizers and desserts. For the thirteenth consecutive year, Red Lobster was named Best Seafood Chain in America in the annual "Choice In Chains" national consumer survey published in the March 2001 issue of Restaurants & Institutions magazine. It is also the recent winner of Restaurant Business Magazine's 2001 Menu Strategist Award for innovative menu offerings. Dinner entree prices range from $7.25 to $23.00, with fresh fish and certain lobster items available at market price. Lunch entree prices range from $4.99 to $10.99. During fiscal 2001, the average check per person was between $15.00 and $16.00, with alcoholic beverages accounting for about 9 percent of Red Lobster's sales. Red Lobster maintains approximately 142 different menus to reflect geographic differences in consumer preferences, prices and selections in its trade areas, as well as a lower-priced children's menu. Fiscal 2001 was a record year in both sales and profits for Red Lobster. For the year, same-restaurant sales at Red Lobster increased 5.9 percent. As of the end of fiscal 2001, Red Lobster had enjoyed fourteen consecutive quarters of same-restaurant sales increases. Olive Garden Olive Garden is the market share leader among Casual Dining Italian restaurants in North America. Olive Garden's menu includes a variety of authentic Italian foods featuring fresh ingredients, and an expanded wine list that includes a broad selection of wines imported from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sauteed specialties with chicken, seafood and fresh vegetables; grilled meats; and a variety of desserts. Olive Garden also uses coffee imported from Italy for its espresso and cappuccino. Dinner entree prices range from $7.50 to $15.95, and most lunch entree prices range from $5.75 to $8.95. The price of each entree also includes as much fresh salad or soup as a guest desires. During fiscal 2001, the average check per person was $12.50 to $13.50, with alcoholic beverages accounting for about 9 percent of Olive Garden's sales. Olive Garden maintains approximately 24 different dinner menus and 18 lunch menus to reflect geographic differences in consumer preferences, prices and selections in its trade areas, as well as four different lower-priced children's' menus. Fiscal 2001 was a record year for profits at Olive Garden. Same-restaurant sales at Olive Garden increased 7.2 percent during fiscal 2001. Olive Garden has had 27 consecutive quarters of same-restaurant sales increases as of the end of fiscal 2001. 3 Bahama Breeze Bahama Breeze is a Caribbean-themed restaurant which offers guests a distinctive island dining experience. The first Bahama Breeze was opened in 1996 and met with strong positive consumer response. The Company continued to test the concept by opening a limited number of additional restaurants in each of the following years, and began national expansion of the concept in 1998. In fiscal 2001, the Company opened seven Bahama Breeze restaurants in four new markets, bringing the total to 21 restaurants in 15 markets. The concept continues to be well received by guests, with strong sales volumes and earnings. The Company plans to open eight to ten new Bahama Breeze restaurants in fiscal 2002. Smokey Bones BBQ Sports Bar The Company's newest Casual Dining restaurant concept, Smokey Bones, combines barbeque with a relaxed sports bar atmosphere. The Company opened the first Smokey Bones in September 1999. There are currently nine Smokey Bones restaurants, and the Company plans to open eight to ten new Smokey Bones restaurants in fiscal 2002. In June 2001, the Company announced that it will begin national expansion of Smokey Bones. Recent and Planned Growth During fiscal 2001, the Company opened 31 new restaurants (excluding the relocation of existing restaurants to new sites and rebuilding at existing sites) and closed four restaurants. This resulted in a net increase of 27 restaurants in operation (or 29 including the relocation of existing restaurants to new sites and rebuilding at existing sites). The Company plans to open approximately 40 to 49 new Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones restaurants during fiscal 2002 (excluding relocations). The Company's actual and projected new openings by concept (excluding the relocation of existing restaurants to new sites and rebuilding at existing sites) are shown below.
Actual Projected Restaurant Openings Restaurant Openings Fiscal 2001 Fiscal 2002 ----------- ----------- Red Lobster................................ 8 10-12 Olive Garden............................... 9 14-17 Bahama Breeze.............................. 7 8-10 Smokey Bones............................... 7 8-10 ---- ------- Totals............................... 31 40-49 ==== =====
The Company's objective is to continue to expand its current portfolio of restaurant concepts, and to develop or acquire additional concepts which can be expanded profitably. It is currently testing new ideas and concepts, and expanding Bahama Breeze and Smokey Bones nationally in light of favorable consumer response. The Company also regularly evaluates potential acquisition candidates to assess whether they would satisfy the Company's strategic and financial objectives. At present, the Company has not identified any specific acquisitions. The Company will continue to focus on improving operational returns at Olive Garden and Red Lobster, and limit new restaurant expansion of those concepts to the highest-potential sites. Olive Garden's expansion will include its recently developed "Tuscan Farmhouse" design, an outgrowth of the Company's collaboration with Rocca del Macie, a family-owned winery in Tuscany. In addition, the Company plans to expand Bahama Breeze and Smokey Bones at a pace that will enable each new restaurant to capture the concept's full potential. The specific number of openings will depend upon other factors, such as the Company's ability to locate appropriate sites, negotiate acceptable purchase or lease terms, obtain necessary local governmental permits, complete construction and recruit and train restaurant management and hourly personnel. Other factors that may affect the ability of the Company to meet its projected restaurant openings are set forth on Exhibit 99, which is incorporated herein by reference. The Company considers location to be a critical factor in determining a restaurant's long-term success, and the Company devotes significant effort to the site selection process for new locations. Prior to entering a market, a 4 thorough study is conducted to determine the optimal number and placement of restaurants. The Company's site selection process incorporates a variety of analytical techniques to evaluate key factors. These factors include trade area demographics, such as target population density and household income levels; competitive influences in the trade area; the site's visibility, accessibility, and traffic volume; and proximity to activity centers such as shopping malls, hotel/motel complexes, offices and universities. Members of senior management evaluate, inspect and approve each restaurant site prior to its acquisition. Constructing and opening a new restaurant typically takes 120 to 180 days after the site is acquired and permits are obtained. The following table illustrates the approximate average capital investment, size and dining capacity of the eight Red Lobster and nine Olive Garden openings (excluding relocations of existing restaurants) that occurred during fiscal 2001.
Capital Square Dining Dining Investment Feet Seats Tables Red Lobster........................ $3,413,000 7,060 177 51 Olive Garden....................... $3,711,000 7,857 215 51
The Company systematically reviews the performance of its restaurant sites to ensure that each restaurant meets its standards. When a restaurant falls below minimum standards, a thorough analysis is completed to determine the causes, and marketing and operational plans are implemented to improve that restaurant's performance. If performance does not improve to acceptable levels, the site is evaluated for relocation, closing or conversion to one of the Company's other concepts. During fiscal 2001, the Company permanently closed two and relocated or rebuilt seven Red Lobster restaurants in the United States, and closed or relocated no restaurants in Canada. During the same period, the Company permanently closed two and relocated or rebuilt three Olive Garden restaurants in the United States, and none in Canada. Restaurant Operations The Company believes that high-quality restaurant management is critical to its long-term success. It also believes that its leadership position, strong success-oriented culture and various short-term and long-term incentive programs, including stock options and restricted stock, help attract and retain highly motivated restaurant managers. The Company's restaurant management structure varies by concept and restaurant size. Each restaurant is led by a general manager and one to four additional managers, depending on the operating complexity and sales volume of the restaurant. Each restaurant also employs approximately 65 to 140 hourly employees, most of whom work part-time. The Company issues detailed operations manuals covering all aspects of restaurant operations as well as food and beverage manuals which detail the preparation procedures of the Company's formulated recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with the Company's operating standards. At the Company's two largest concepts, Red Lobster and Olive Garden, restaurant general managers report to directors, and each director is responsible for seven to 14 restaurants. Restaurants are visited regularly by all levels of supervision to ensure strict adherence to all aspects of the Company's standards. Each concept's vice president or director of training, together with senior operations executives, is responsible for developing and maintaining that concept's operational training programs. These efforts include a 12-to-15 week training program for management trainees, and continuing development programs for managers, supervisors and directors. The emphasis of the training and development programs varies by restaurant concept, but includes leadership, restaurant business management and culinary skills. The Company also uses a highly structured training program to open new restaurants, including training teams consisting of groups of employees experienced in all aspects of restaurant operations. The opening training teams typically begin on-site training one week prior to opening and remain on location one week following the opening. They are phased out when appropriate to enable a smooth transition to the restaurant's operating staff. 5 Quality Assurance The Company's Quality Assurance Department helps ensure that all restaurants provide high-quality food products in a clean and safe environment. Through rigorous physical evaluation and testing at the Company's North American laboratories and through "Point Source Inspection" in southeastern Asia, the Company seeks to ensure that all seafood purchased meets or exceeds its specifications. Since 1976, the Company has maintained a microbiological laboratory to routinely test seafood and commodity products for quality and microbiological safety. In addition, quality assurance managers visit each restaurant periodically throughout the year to review food handling, and to provide education and training in food safety and sanitation. The quality assurance managers also serve as a liaison to regulatory agencies on issues relating to food safety. The Company uses independent third party auditors to inspect and evaluate vendors of commodity food products. In this manner, the Company attempts to ensure that its suppliers are maintaining good manufacturing practices and are operating with the comprehensive industry standard Hazard Analysis Critical Control Points programs in place. Purchasing and Distribution The Company's ability to ensure a consistent supply of high-quality food and supplies at competitive prices to all of its restaurant concepts depends upon procurement from reliable sources. The Company's purchasing staff sources, negotiates and purchases food and supplies from more than 2,500 suppliers in 45 countries. Suppliers are required to meet strict quality control standards in the development, harvest, catch and production of food products. Competitive bids, long-term contracts and long-term vendor relationships are routinely used to manage availability and cost of products. The Company believes that its seafood purchasing capabilities are a significant competitive advantage. The Company's purchasing staff routinely travels within the United States and internationally to source over 100 varieties of top-quality seafood at competitive prices. The Company believes that it has established excellent long-term relationships with key seafood vendors, and sources product directly from the vendors when possible. The Company operates a procurement office in Singapore to source products directly from Asia. While the supply of certain seafood species is volatile, the Company believes that it has the ability to identify alternative seafood products and to adjust its menus as required. All other essential food products are available, or can be made available upon short notice, from alternative qualified suppliers. Because of the relatively rapid turnover of perishable food products, inventories in the restaurants have a modest aggregate dollar value in relation to revenues. Controlled inventories of specified products are distributed to all restaurants through national distribution companies. Advertising and Marketing The Company believes that it has developed significant marketing and advertising capabilities. The Company's size enables it to be a dominant advertiser in the Casual Dining segment of the restaurant industry. The Company leverages the efficiency of national network television advertising and supplements it with local market television advertising. The Company's restaurants appeal to a broad spectrum of consumers and it uses advertising and product promotions to attract customers. The Company implements periodic promotions as appropriate to maintain and increase its sales and profits. It also relies on radio and newspaper advertising, as well as newspaper and direct mail couponing programs, as appropriate, to attract customers. The Company has developed and consistently uses sophisticated consumer marketing research techniques to monitor customer satisfaction and customers' evolving expectations. Employees At the end of fiscal 2001, the Company employed approximately 128,900 persons. Of these employees, approximately 1,200 were corporate or concept personnel located in the Company's restaurant support center in Orlando, Florida, approximately 5,300 were restaurant management personnel in the restaurants or in field offices, and the remainder were hourly restaurant personnel. Of the restaurant support center employees, approximately 56 percent were in management and the balance were administrative or office employees. The operating executives of the Company have an average of more than 13 years of experience with the Company. The restaurant general managers average 11 years with the Company. The Company believes that it provides working conditions and compensation that compare favorably with those of its competition. Most employees, other than restaurant 6 management and corporate management, are paid on an hourly basis. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good. Management Information Systems The Company strives for leadership in the restaurant business by using technology as a competitive advantage. Since 1975, computers located in the restaurants have been used to assist in the management of the restaurants. The Company has implemented systems targeted at improved financial control, cost management, enhanced guest service and improved employee effectiveness. Management information systems are designed to be used across restaurant concepts, yet are flexible enough to meet the unique needs of each specific restaurant concept. The Company is currently upgrading both its financial and human resource (including payroll and benefits) systems using web enabled and fully integrated application suites. The implementation of a high-speed data network connecting all restaurants to all current and future applications is also currently underway. Implementation of these projects is expected to take place during fiscal 2002. Restaurant support is provided from the restaurant support center in Orlando, Florida, seven days a week, 24 hours a day. A communications network sends and receives critical business data to and from the restaurants each night, providing timely and extensive information each morning on business activity in every location. The restaurant support center houses the Company's data center, which contains sufficient computing power to process information from all restaurants quickly and efficiently. The Company's information is processed in a secured environment to protect both the actual data and the physical assets. The Company guards against business interruption by maintaining a disaster recovery plan, which includes storing critical business information off-site and testing the disaster recovery plan at a hot-site facility. The Company uses internally developed proprietary software, as well as purchased software, with proven, non-proprietary hardware. This allows processing power to be distributed effectively to each of the Company's restaurant locations. The Company's management believes its current systems and the upgrades expected to be implemented during fiscal 2002 will well position the Company to support current needs as well as future growth. The Company is committed to maintaining an industry leadership position in information systems and computing technology. The Company uses a strategic information systems planning process that is integrated into the Company's overall business planning and approved by senior management. Information systems projects are prioritized based upon strategic, financial, regulatory and other business advantage criteria. Competition The restaurant industry is intensely competitive with respect to food quality, price, service, restaurant location, concept, attractiveness of facilities, and effectiveness of advertising and marketing programs. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers' discretionary purchasing power. The Company competes within each market with national and regional chains as well as locally-owned restaurants, not only for customers but also for management and hourly personnel and suitable real estate sites. Restaurants face growing competition from the supermarket industry, which is offering "convenient meals" in the form of improved entrees and side dishes from the deli section. The Company expects intense competition to continue in all of these areas. Other factors pertaining to the Company's competitive position in the industry are addressed under the sections entitled "Forward-Looking Statements," "Purchasing and Distribution," "Advertising and Marketing," and "Management Information Systems," and elsewhere in this report. Trademarks and Related Agreements The Company regards its Darden Restaurants(R), Red Lobster(R), Olive Garden(R), Bahama Breeze(R) and Smokey Bones(R) BBQ Sports Bar service marks, and other variations of these service marks, as having significant value and as being important in marketing the restaurants. The Company's policy is to pursue registration of its important service marks and trademarks whenever possible and to oppose vigorously any infringement of them. 7 The only restaurant operations outside of North America historically have been conducted through Red Lobster Japan Partners, a partnership venture with the Japanese retailer JUSCO that was established in 1982. The historical financial results of Darden exclude the results of such operations. On April 26, 1995, the Darden subsidiary, GMRI, entered into an Area Development and Franchise Agreement with Red Lobster Japan Partners, which operated 34 Red Lobster restaurants in Japan as of May 27, 2001. Darden does not have an ownership interest in Red Lobster Japan Partners. Royalty income is not material to the Company's consolidated financial statements. Seasonality The Company's sales volumes fluctuate seasonally. During fiscal years 2000 and 2001, the Company's sales were highest in the spring, lowest in the fall, and comparable during winter and summer. Severe weather, storms and similar conditions may impact sales volumes seasonally in some operating regions. Government Regulation The Company is subject to various federal, state and local laws affecting its business. Each of the Company's restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located. The development and operation of restaurants depend on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. To date, the Company has not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals. Presently about 9 percent of sales are attributable to the sale of alcoholic beverages. Regulations governing their sale require licensure by each site (in most cases, on an annual basis) and licenses may be revoked or suspended for cause at any time. These regulations relate to many aspects of restaurant operation, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain these licenses would adversely affect the restaurant's operations. The Company is also subject in certain states to "dram-shop" statutes, which generally provide an injured party with recourse against an establishment that wrongfully serves alcoholic beverages to an intoxicated person, causing the injury. The Company carries liquor liability coverage as part of its comprehensive general liability insurance. The Company is also subject to federal and state minimum wage laws and other laws governing such matters as overtime, tip credits, working conditions, safety standards, and hiring and employment practices. Changes in these laws during fiscal 2001 have not had a material effect on the Company's operations. The Company is currently operating under a Tip Rate Alternative Commitment ("TRAC") agreement with the Internal Revenue Service. Through increased educational and other efforts in the restaurants, the TRAC agreement reduces the likelihood of potential chain-wide employer-only FICA assessments for unreported tips. The Company is subject to federal and state environmental regulations, but these rules have not had a material effect on the Company's operations. During fiscal 2001, there were no material capital expenditures for environmental control facilities and no such expenditures are anticipated. The Company continues to monitor its facilities for compliance with the Americans With Disabilities Act of 1990 ("ADA") and related state statutes in order to conform to their requirements. Under the ADA and related state laws, the Company could be required to expend funds to modify its restaurants to make them more readily accessible to disabled persons, to better provide service to disabled persons, or to make reasonable accommodation for the employment of disabled persons. 8 Executive Officers The executive officers of the Company as of the date of this report are: Joe R. Lee, age 60, has been Chief Executive Officer of the Company since December 1994 and Chairman of the Board of the Company since April 1995. Mr. Lee joined Red Lobster in 1967 as a member of its opening management team, and was named its President in 1975. From 1970 to 1995, he held various positions with General Mills, Inc., a manufacturer and marketer of consumer food products and the Company's former parent, including Vice Chairman, with responsibility for various consumer foods businesses and corporate staff functions, and Executive Vice President, Finance and International Restaurants. Blaine Sweatt, III, age 53, has been Executive Vice President of the Company since April 1995, President, New Business Development of the Company since September 1996, and a Director of the Company since 1995. He joined Red Lobster in 1976 and was named Director of New Restaurant Concept Development in 1981. From 1976 to 1995, he held various positions with General Mills, Inc., a manufacturer and marketer of consumer food products and the Company's former parent. He led the teams that developed the Olive Garden, Bahama Breeze and Smokey Bones concepts, among others. Bradley D. Blum, age 47, has been Executive Vice President of the Company since September 1997, President of Olive Garden since December 1994 and a Director of the Company since 1997. He joined the Company in 1994 as Senior Vice President of Marketing for Olive Garden and served as Senior Vice President of the Company from 1995 until 1997. Prior to that time, he held various positions during a 16 year career with General Mills, Inc., a manufacturer and marketer of consumer food products and the Company's former parent. Richard E. Rivera, age 54, has been Executive Vice President of the Company, President of Red Lobster Restaurants and a Director of the Company since December 1997. He served as President and Chief Executive Officer of Chart House Restaurants, Inc. from July until December 1997, as President and Chief Executive Officer of RARE Hospitality International, Inc., the owner of LongHorn Steakhouse restaurants, from 1994 to 1997, and as President and Chief Executive Officer of TGI Friday's, Inc. from 1988 to 1994. He began his career with Steak & Ale Restaurants of America and has held various leadership positions in the industry over the last 25 years, including as a Director of the National Restaurant Association. Laurie B. Burns, age 39, has been Senior Vice President, Development for Darden since September 2000. She joined the Company in April 1999 as Vice President of Development Red Lobster, and has over 15 years of experience in all phases of development. She was a private real estate consultant from October 1998 until joining the Company in April 1999, and was Regional Vice President for Development for the Eastern United States at Homestead Village, an extended-stay hotel company, from 1995 to 1998. Linda J. Dimopoulos, age 50, has been Senior Vice President, Chief Information Officer of the Company with overall responsibility for information services and systems since December 1999. She joined the Company in 1982, and was named Director, Corporate Analysis in 1985. In 1986, she was named Vice President, Controller for Red Lobster, and then Vice President, Information Services. She served as Senior Vice President, Financial Operations of Red Lobster from 1993 to July 1998, and as Senior Vice President, Corporate Controller and Business Information Systems of the Company from July 1998 until assuming her current position. Gary Heckel, age 48, has been Senior Vice President of the Company since June 1999 and President of Bahama Breeze since July 1998. He joined the Company in 1995 as Vice President, Operations in the Company's New Business Development division. He served as Senior Vice President, Operations for Bahama Breeze from August 1997 until assuming his current position. His career in the restaurant industry includes employment with several major Quick Service and Casual Dining restaurant companies, such as Burger King Corporation, Taco Bell Corp. and TGI Friday's, Inc. 9 Stephen E. Helsel, age 56, has been Senior Vice President, Corporate Controller of the Company since December 1999. He joined the Company in 1973 as an accountant with Red Lobster, and was named Vice President, Controller of Red Lobster in 1989. He served as Vice President, Controller, Accounting Services of the Company from 1991 to 1996, and as Senior Vice President, Information Services of the Company from 1996 until December 1999. Daniel M. Lyons, age 48, has been Senior Vice President, Human Resources of the Company since January 1997. He joined the Company in 1993 as Senior Vice President of Personnel for Olive Garden. Prior to joining Olive Garden, he spent 18 years with the Quaker Oats Company. Robert W. Mock, age 49, has been Senior Vice President of the Company since July 1998 and President of Smokey Bones since September 1999. He joined the Company in 1969. He served as Executive Vice President and General Manager of Red Lobster Canada from 1992 to 1994, and as Executive Vice President, Operations for Olive Garden from 1994 until July 1998. Barry Moullet, age 43, has been Senior Vice President, Purchasing, Distribution and Food Safety for the Company since June 1999. He joined the Company in July 1996 as Senior Vice President, Purchasing and Distribution. Prior to joining the Company, he spent 15 years in the purchasing field in various positions with Restaurant Services, Inc., a Burger King purchasing co-operative, Kentucky Fried Chicken and the Pillsbury Company. Clarence Otis, Jr., age 45, has been Senior Vice President, Chief Financial Officer of the Company since December 1999. He joined the Company in 1995 as Vice President and Treasurer. He served as Senior Vice President, Investor Relations and Treasurer of the Company from July 1997 to July 1998, and as Senior Vice President, Finance and Treasurer from July 1998 until assuming his current position in December 1999. Prior to joining the Company, he was employed by Chemical Securities, Inc., an investment banking firm, where he had been Managing Director and Manager of Public Finance since 1991. Paula J. Shives, age 50, has been Senior Vice President, General Counsel and Secretary of the Company since June 1999. She served as Associate General Counsel (1985-1995) and Senior Vice President, General Counsel and Secretary (1995-1999) of Long John Silver's Restaurants, Inc., until joining the Company in May 1999. Richard J. Walsh, age 49, has been Senior Vice President, Corporate Relations of the Company since 1994. He joined General Mills, Inc., a manufacturer and marketer of consumer food products and the Company's former parent, in 1984 as Manager of Government Affairs for Red Lobster. He served as Vice President of Government and Community Relations for General Mills Restaurants, Inc. from 1987 until assuming his current position with the Company in December 1994. Forward-Looking Statements Certain information included in this report and other materials filed or to be filed by the Company with the Commission (as well as information included in oral or written statements made or to be made by, or on behalf of, the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This forward-looking information is based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, could cause the actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include competition, economic and market conditions, changes in food and other costs, the importance of locations, government regulations and the Company's ability to achieve its growth objectives, each of which is more specifically discussed in Exhibit 99 filed with and incorporated into this report. 10 Item 2. PROPERTIES As of May 27, 2001, the Company operated 1,168 restaurants (including 661 Red Lobster, 477 Olive Garden, 21 Bahama Breeze and nine Smokey Bones restaurants) and one Olive Garden Cafe in the following locations:
Alabama (19) Iowa (13) Nevada (10) South Dakota (3) Arizona (26) Kansas (11) New Hampshire (3) Tennessee (25) Arkansas (10) Kentucky (14) New Jersey (27) Texas (97) California (88) Louisiana (7) New Mexico (8) Utah (10) Colorado (22) Maine (3) New York (46) Vermont (1) Connecticut (9) Maryland (19) North Carolina (25) Virginia (39) Delaware (4) Massachusetts (8) North Dakota (4) Washington (21) Florida (120) Michigan (45) Ohio (69) West Virginia (5) Georgia (46) Minnesota (21) Oklahoma (17) Wisconsin (20) Hawaii (1) Mississippi (7) Oregon (10) Wyoming (2) Idaho (6) Missouri (26) Pennsylvania (55) Canada (37) Illinois (48) Montana (2) Rhode Island (2) Indiana (34) Nebraska (7) South Carolina (17)
Of the Company's 1,168 restaurants and the Olive Garden Cafe open on May 27, 2001, 752 were on owned sites and 417 were on leased sites. The 417 leases are classified as follows: Land-Only Leases (Darden owns buildings and equipment)........ 301 Ground and Building Leases.................................... 61 Space/In-Line/Other Leases.................................... 55 ---- Total.................................................... 417 === During fiscal 1999, the Company formed two subsidiary corporations, each of which elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code. These elections limit the activities for both corporations to holding certain real estate assets. The formation of these two REITs is designed primarily to assist the Company in managing its real estate portfolio and possibly to provide a vehicle to access future capital markets. Both REITs are non-public REITs. Through its subsidiary companies, Darden indirectly owns 100% of all voting stock and greater than 99.5% of the total value of each REIT. For financial reporting purposes, both REITs are included in Darden's consolidated group. The Company owns its executive offices, culinary center and training facilities in Orlando, Florida. Except in limited instances, the Company's restaurant sites and other facilities are not subject to mortgages or encumbrances securing money borrowed by the Company from outside sources. See also Notes 5 and 13 of Notes to Consolidated Financial Statements on pages 31 and 34, respectively, of the Company's 2001 Annual Report to Shareholders, incorporated herein by reference. Item 3. LEGAL PROCEEDINGS From time to time, the Company is made a party to legal proceedings arising in the ordinary course of business. The Company does not believe that the results of these legal proceedings, even if unfavorable to the Company, will have a materially adverse impact on its financial position, results of operations or cash flows. See the section entitled "Government Regulation" for a discussion of various federal, state and local regulatory matters. 11 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information concerning the dividends and high and low intraday sales prices for the Company's common shares on the New York Stock Exchange for each full quarterly period during fiscal 2000 and 2001 contained in Note 18 Quarterly Data on page 39 of the Company's 2001 Annual Report to Shareholders is incorporated herein by reference. As of July 23, 2001, there were 34,442 record holders of the Company's common shares. Item 6. SELECTED FINANCIAL INFORMATION The information for fiscal 1997 through 2001, contained in the Five Year Financial Summary on page 40 of the Company's 2001 Annual Report to Shareholders, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 through 21 of the Company's 2001 Annual Report to Shareholders is incorporated herein by reference. Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The text under the heading "Quantitative and Qualitative Disclosures About Market Risk" contained within "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21 of the Company's 2001 Annual Report to Shareholders is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 22 through 39 of the Company's 2001 Annual Report to Shareholders are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the sections entitled "Who are This Year's Nominees?" on pages 6 through 8, "What are the Committees of the Board?" on pages 9 through 10, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 29 of the Company's definitive Proxy Statement dated August 15, 2001, is incorporated herein by reference. Information regarding executive officers is contained in Part I above under the heading "Executive Officers." 12 Item 11. EXECUTIVE COMPENSATION The information contained in the sections entitled "How are Directors Compensated?" on pages 10-11, "Summary Compensation Table" on pages 16-17, "Option Grants in Last Fiscal Year" on page 18, "Stock Option Exercises and Holdings" on page 19, "Do Executive Officers Currently Participate in a Defined Benefit Retirement Plan?" on page 20, "Does the Company Have Any Change-in-Control Agreements?" on page 20, and "Compensation Committee Interlocks and Insider Participation" on page 25 of the Company's definitive Proxy Statement dated August 15, 2001, is incorporated herein by reference. The information appearing in such Proxy Statement under the heading "Compensation Committee Report" (except under the heading "Compensation Committee Interlocks and Insider Participation") is not incorporated herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the section entitled "Security Ownership of Principal Shareholders" on pages 12-13 and "Security Ownership of Management" on pages 14-15 of the Company's definitive Proxy Statement dated August 15, 2001, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the sections entitled "Does the Company Provide Incentives for Executives to Meet Their Share Ownership Guidelines?" on page 21, and "Are There Any Other Relationships or Related Transactions Between the Company and its Management?" on page 21 of the Company's definitive Proxy Statement dated August 15, 2001, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Statements of Earnings for the fiscal years ended May 27, 2001, May 28, 2000, and May 30, 1999 (incorporated by reference to page 23 of the Company's 2001 Annual Report to Shareholders). Consolidated Balance Sheets at May 27, 2001 and May 28, 2000 (incorporated by reference to page 24 of the Company's 2001 Annual Report to Shareholders). Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended May 27, 2001, May 28, 2000, and May 30, 1999 (incorporated by reference to page 25 of the Company's 2001 Annual Report to Shareholders). Consolidated Statements of Cash Flows for the fiscal years ended May 27, 2001, May 28, 2000, and May 30, 1999 (incorporated by reference to page 26 of the Company's 2001 Annual Report to Shareholders). Notes to Consolidated Financial Statements (incorporated by reference to pages 27 through 39 of the Company's 2001 Annual Report to Shareholders). 2. Financial Statements Schedules: Not applicable. 3. Exhibits: Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof, the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request. 13 Exhibit Number Title 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to the Company's Registration Statement on Form 10 effective May 5, 1995). 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form 10 effective May 5, 1995). 4(a) Rights Agreement dated as of May 28, 1995 between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as amended May 23, 1996, assigned to First Union National Bank, as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 4(b) Indenture dated as of January 1, 1996, between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to the Company's Current Report on Form 8-K filed February 9, 1996). *10(a) Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995, as amended. *10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Registration Statement on Form 10 effective May 5, 1995). *10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated) herein by reference to Exhibit 10(c) to the to the Company's Annual Report on Form 10-K for the fiscal year ended May 26, 1996). *10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to the Company's Registration Statement on Form 10 effective May 5, 1995). *10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to the Company's Registration Statement on Form 10 effective May 5, 1995). *10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended (incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10(g) Darden Restaurants, Inc. Compensation Plan for Non- Employee Directors, as amended (incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10(h) Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10(i) Benefits Trust Agreement dated as of October 3, 1995 between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997). 14 *10(j) Form of Management Continuity Agreement, as amended, between the Company and certain of its executive officers (incorporated herein by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997). *10(k) Form of documents for Fiscal 1998 Stock Purchase/ Option Award program of Darden Restaurants, Inc.: Non-Negotiable Promissory Note and Stock Pledge Agreement. 12 Computation of Ratio of Consolidated Earnings to Fixed Charges. 13 Portions of 2001 Annual Report to Shareholders. 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent. 24 Powers of Attorney. 99 Cautionary Statements Under the Private Securities Litigation Reform Act of 1995. * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K. The Company will furnish copies of any exhibit listed above upon request upon the payment of a reasonable fee to cover the Company's expenses in furnishing such exhibit. (b) Reports on Form 8-K. During the last quarter covered by this report, the Company filed the following current report on Form 8-K: (i) Current report on Form 8-K dated March 21, 2001, reporting certain financial results for the third quarter of fiscal 2001, reporting February same-restaurant sales results, and announcing the election of former Senator Connie Mack, III to the Board of Directors. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 15, 2001 DARDEN RESTAURANTS, INC. By: /s/ Joe R. Lee -------------- Joe R. Lee Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date /s/ Joe R. Lee Director, Chairman of the Board and Chief August 15, 2001 - ------------------------------ Joe R. Lee Executive Officer (Principal executive officer) /s/ Clarence Otis, Jr. Senior Vice President and Chief Financial Officer August 15, 2001 - ------------------------------- Clarence Otis, Jr. (Principal financial and accounting officer) /s/ Bradley D. Blum* Director - ------------------------------- Bradley D. Blum /s/ Daniel B. Burke* Director - ------------------------------- Daniel B. Burke /s/Odie C. Donald* Director - ------------------------------- Odie C. Donald /s/ Julius Erving, II* Director - ------------------------------- Julius Erving, II /s/ Cornelius McGillicuddy, III* ** Director - ------------------------------------ Cornelius McGillicuddy, III /s/ Richard E. Rivera* Director - ------------------------------- Richard E. Rivera /s/ Michael D. Rose* Director - ------------------------------- Michael D. Rose /s/ Hector de J. Ruiz* Director - ------------------------------- Hector de J. Ruiz /s/ Maria A. Sastre* Director - ------------------------------- Maria A. Sastre /s/ Jack A. Smith* Director - ------------------------------- Jack A. Smith 16 /s/ Blaine Sweatt, III* Director - ------------------------------- Blaine Sweatt, III /s/ Rita P. Wilson* Director - ------------------------------- Rita P. Wilson
*BY: /s/ Paula J. Shives ------------------- Paula J. Shives, Attorney-In-Fact August 15, 2001 ** Popularly known as Senator Connie Mack, III. Senator Mack signs legal documents, including this Form 10-K, under his legal name of Cornelius McGillicuddy, III. 17 EXHIBIT INDEX Exhibit Number Title 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to the Company's Registration Statement on Form 10 effective May 5, 1995). 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form 10 effective May 5, 1995). 4(a) Rights Agreement dated as of May 28, 1995 between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as amended May 23, 1996, assigned to First U nion National Bank, as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 4(b) Indenture dated as of January 1, 1996, between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to the Company's Current Report on Form 8-K filed February 9, 1996). * 10(a) Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995, as amended. * 10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein by reference to Exhibit 10(b) to the Company's Registration Statement on Form 10 effective May 5, 1995). * 10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended May 26, 1996). * 10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to the Company's Registration Statement on Form 10 effective May 5, 1995). * 10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to the Company's Registration Statement on Form 10 effective May 5, 1995). *10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended (incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10(g) Darden Restaurants, Inc. Compensation Plan for Non- Employee Directors, as amended (incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1998). *10(h) Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2000). *10(i) Benefits Trust Agreement dated as of October 3, 1995, between the Company and Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, N.A., as Trustee (incorporated herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997). *10(j) Form of Management Continuity Agreement, as amended, between the Company and certain of its executive officers (incorporated herein by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended May 25, 1997). *10(k) Form of documents for Fiscal 1998 Stock Purchase/Option Award program of Darden Restaurants, Inc.: Non-Negotiable Promissory Note and Stock Pledge Agreement. 12 Computation of Ratio of Consolidated Earnings to Fixed Charges. 13 Portions of 2001 Annual Report to Shareholders. 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent. 24 Powers of Attorney. 99 Cautionary Statements Under the Private Securities Litigation Reform Act of 1995. * Items marked with an asterisk are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14 of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K. EX-10 2 exh10a.txt EXH10APLAN EXHIBIT 10(a) DARDEN RESTAURANTS, INC. AMENDED AND RESTATED STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 THIS DOCUMENT, DATED MAY 27, 2001 CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Additional information about this Plan and its administrators may be obtained without charge by writing to the Supervisor, Stock Compensation Plans, Darden Restaurants, Inc., Compensation Department, P.O. Box 593330, Orlando, FL 32859-3330, or by calling (407) 245-4293. 1 DARDEN RESTAURANTS, INC. AMENDED AND RESTATED STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 1. PURPOSE OF THE PLAN The purpose of the Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995 (the "Plan") is to attract and retain able employees by rewarding employees of Darden Restaurants, Inc., its subsidiaries and affiliates (defined as entities in which Darden Restaurants, Inc. owns an equity interest of 25% or more) (collectively, the "Company") who are responsible for the growth and sound development of the business of the Company, and to align the interests of all employees with those of the stockholders of the Company and to compensate certain management employees of the Company by granting stock options in lieu of salary increases or other compensation or employee benefits. 2. EFFECTIVE DATE, DURATION AND SUMMARY OF PLAN A. Effective Date and Duration This Plan shall become effective as of the effective date of the distribution of Darden Restaurants, Inc. Common Stock to the holders of General Mills, Inc. common stock. Awards may be made under the Plan until September 30, 2004. B. Summary of Option Provisions for Participants The stock option that will be awarded to employees under this Plan gives a right to an employee to purchase at a future date shares of Darden Restaurants, Inc. Common Stock at a fixed price. As an employee, you will receive an "option agreement" in your own name, which will contain the term and other conditions of the option grant. In general, each option agreement will state the number of shares of Darden Restaurants, Inc. Common Stock that you can purchase from the Company, the price at which you can purchase the shares, and the last date you can make your purchase. You will not have any taxable income when you receive the option agreement. The price at which you may buy the Darden Restaurants, Inc. shares will be equal to the market price of the Company shares on the New York Stock Exchange as of the day the option was awarded to you. If after the period that you must hold the option before you can exercise such option the price of Darden Restaurants, Inc. Common Stock has risen, you will be able to make a gain on exercising the option equal to the difference between the exercise price of the option and the market price of Darden Restaurants, Inc. shares on the date you use your option to buy shares under the terms of the option certificate. This gain will be taxable to you. 2 You will never be obligated to buy shares of the Company if you do not wish to do so. After the required holding period before you can exercise the option, you can continue to hold the option as an employee for the remaining years of the option before making the decision whether or not to buy shares of the Company. Thereafter, the rights under the option will lapse and cannot be used by the employee. Generally you cannot sell or assign the option to any other person and the specific provisions which cover your rights in the option are covered in the full text of the Plan. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised solely of non-employee, independent members of the Board of Directors (the "Board") appointed in accordance with the Company's Articles of Incorporation. Subject to the provisions of Section 14, the Committee shall have authority to adopt rules and regulations for carrying out the purpose of the Plan, select the employees to whom Awards will be made ("Participants"), determine the number of shares to be awarded and the other terms and conditions of Awards in accordance with the Plan provisions and interpret, construe and implement the provisions of the Plan; provided that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), so permits, without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the 1934 Act (or any successor provisions) provided by Rule 16b-3, the Committee may delegate its duties under the Plan in whole or in part, on such terms and conditions, to the Chief Executive Officer and to other senior officers of the Company; provided further, that only the Committee may select and make other decisions as to Awards to Participants who are subject to Section 16 of the 1934 Act and to other executives of the Company. The Committee (or its permitted delegate) may correct any defect or supply any omission or reconcile any inconsistency in any agreement relating to any Award under the Plan in the manner and to the extent it deems necessary. Decisions of the Committee (or its permitted delegate) shall be final, conclusive and binding upon all parties, including the Company, stockholders and Participants. 4. COMMON STOCK SUBJECT TO THE PLAN The shares of common stock of the Company (without par value) ("Common Stock") to be issued upon exercise of a Stock Option, awarded as Restricted Stock, or issued upon expiration of the restricted period for Restricted Stock Units, may be made available from the authorized but unissued Common Stock, shares of Common Stock held in the Company's treasury, or Common Stock purchased by the Company on the open market or otherwise. Approval of the Plan by the sole shareholder of the Company shall constitute authorization to use such shares for the Plan. The Committee, in its discretion, may require as a condition to the grant of Stock Options, Restricted Stock or Restricted Stock Units (collectively, "Awards"), the deposit of Common Stock owned by the Participant receiving such grant, and the forfeiture of such Awards, if such deposit is not made or maintained during the required holding period or the applicable 3 restricted period. Such shares of deposited Common Stock may not be otherwise sold, pledged or disposed of during the applicable holding period or restricted period. The Committee may also determine whether any shares issued upon exercise of a Stock Option shall be restricted in any manner. The maximum aggregate number of shares of Common Stock authorized under the Plan for which Awards may be granted under the Plan is 22,200,000. Upon the expiration, forfeiture, termination or cancellation, in whole or in part, of unexercised Stock Options, or forfeiture of Restricted Stock or Restricted Stock Units on which no dividends or dividend equivalents have been paid, the shares of Common Stock subject thereto shall again be available for Awards under the Plan. The number of shares subject to the Plan, the outstanding Awards and the exercise price per share of outstanding Stock Options may be appropriately adjusted by the Committee in the event that: (i) the number of outstanding shares of Common Stock shall be changed by reason of split-ups, spin-offs, combinations or reclassifications of shares; (ii) any stock dividends are distributed to the holders of Common Stock; (iii) the Common Stock is converted into or exchanged for other shares as a result of any merger or consolidation (including a sale of assets) or other recapitalization, or other similar events occur which affect the value of the Common Stock; or (iv) the Committee determines such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. 5. ELIGIBLE PERSONS Only persons who are employees of the Company shall be eligible to receive Awards under the Plan ("Participants"). No Award shall be made to any member of the Committee or any other non-employee director of the Company. 6. PURCHASE PRICE OF STOCK OPTIONS The purchase price for each share of Common Stock issuable under a Stock Option shall not be less than 100% of the Fair Market Value of the shares of Common Stock on the date of grant. "Fair Market Value" as used in the Plan shall equal the mean of the high and low price of the Common Stock on the New York Stock Exchange on the applicable date. 7. STOCK OPTION TERM AND TYPE The term of any Stock Option as determined by the Committee shall not exceed 10 years from the date of grant and shall expire as of the close of business on the last day of the 4 designated term, unless terminated earlier under the provisions of the Plan. All Stock Option grants under the Plan shall be non-qualified stock options governed by Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"). 8. EXERCISE OF STOCK OPTIONS A. Of the 22,200,000 shares of Common Stock authorized for issuance hereunder, not less than 3,000,000 shall be issued only as salary replacement Stock Options ("SRO's") in lieu of salary increases, compensation or other employee benefits, subject that SRO's granted to directors pursuant to the Stock Plan for Directors (as amended) shall also be included within such 3,000,000 shares of Common Stock. Except as provided in Sections 12 and 13, each Stock Option issued as an SRO may be exercised as determined by the Committee in its discretion. B. Except as provided in Sections 12 and 13 (Change of Control and Termination of Employment), each Stock Option, other than an SRO, may be exercised from the date of grant no sooner than in increments of one-third after two years, one-third after three years and one-third after four years, subject to the Participant's continued employment with the Company and in accordance with other terms and conditions prescribed by the Committee which may specify a longer period before an option may be exercised. C. The number of shares of Common Stock subject to Stock Options, excluding SRO's, granted under the Plan to any single Participant shall not exceed 300,000 shares in each of the last four fiscal years of the Plan determined on a prospective and retroactive cumulative basis. D. A Participant exercising a Stock Option shall give notice to the Company of such exercise and of the number of shares elected to be purchased prior to 5:00 P.M. EST/EDT on the day of exercise, which must be a business day at the executive offices of the Company. At the time of purchase, the Participant shall tender the full purchase price of the shares purchased. Until such payment has been made and a certificate or certificates for the shares purchased has been issued in the Participant's name, the Participant shall possess no stockholder rights with respect to such shares. Payment of such purchase price shall be made to the Company, subject to any applicable rule or regulation adopted by the Committee: (i) in cash (including check, draft, money order or wire transfer made payable to the order of the Company); (ii) through the delivery of shares of Common Stock owned by the Participant; or (iii) by a combination of (i) and (ii) above. For determining the amount of the payment, Common Stock delivered pursuant to (ii) or (iii) shall have a value equal to the Fair Market Value of the Common Stock on the date of exercise. 5 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS With respect to Awards of Restricted Stock and Restricted Stock Units, the Committee shall: (i) select Participants to whom Awards will be made, provided that Restricted Stock Units may only be awarded to those employees of the Company who are employed in a country other than the United States; (ii) determine the number of shares of Restricted Stock or the number of Restricted Stock Units to be awarded; (iii) determine the length of the restricted period, which shall be no less than one year, provided, however, that effective for Restricted Stock granted on or after June 1, 2000, the restricted period may be accelerated to less than one year based on performance goals established by the Committee; (iv) determine the purchase price, if any, to be paid by the Participant for Restricted Stock or Restricted Stock Units; and (v) determine any restrictions other than those set forth in this Section 9. Any shares of Restricted Stock ranted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of stock certificates, and may be held in escrow. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. Each Participant who receives Restricted Stock Units shall be eligible to receive, at the expiration of the applicable restricted period, one share of Common Stock for each Restricted Stock Unit awarded, and the Company shall issue to and register in the name of each such Participant a certificate for that number of shares of Common Stock. Participants who receive Restricted Stock Units shall have no rights as stockholders with respect to such Restricted Stock Units until such time as share certificates for Common Stock are issued to the Participants; provided, however, that quarterly during the applicable restricted period for all Restricted Stock Units awarded hereunder, the Company shall pay to each such Participant an amount equal to the sum of all dividends and other distributions paid by the Company during the prior quarter on that equivalent number of shares of Common Stock. Subject to the provisions of Section 12, for awards of Restricted Stock or Restricted Stock Units which have a deposit requirement, a Participant will be eligible to vest only in those shares of Restricted Stock or Restricted Stock Units for which personally-owned shares are on deposit with the Company as of the date the Participant's employment with the Company terminates. 6 The total number of shares of Common Stock issued upon vesting of Restricted Stock or Restricted Stock Units granted under the Plan shall not exceed 1,500,000 of the total number of shares of Common Stock which may be issued under this Plan, and no single Participant shall receive under the Plan Restricted Stock or Restricted Stock Units which, upon vesting, would exceed 2% of the total number of shares of Common Stock which may be issued under the Plan. 10. NON-TRANSFERABILITY Except as otherwise provided in Section 9, no shares of Restricted Stock and no Restricted Stock Units shall be sold, exchanged, transferred, pledged, or otherwise disposed of during the restricted period. No Stock Options granted under this Plan shall be transferable by a Participant otherwise than (i) by the Participant's last will and testament or (ii) by the applicable laws of descent and distribution, or (iii) by gift by a Participant who is subject to Section 16 of the 1934 Act and is eligible for retirement (age 55 with 10 years of service) to a "family member" defined by the Committee. Such Stock Options shall be exercised during the Participant's lifetime only by the Participant or his or her guardian or legal representative or the donee family member. After death, such Stock Option may be exercised in accordance with Section 13B. Other than as set forth herein, no Award under the Plan shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. 11. WITHHOLDING TAXES It shall be a condition to the obligation of the Company to deliver shares upon the exercise of a Stock Option, the vesting of Restricted Stock or Restricted Stock Units and the corresponding issuance of shares of unrestricted Common Stock, that the Participant pay to the Company cash in an amount equal to all federal, state, local and foreign withholding taxes required to be collected in respect thereof. Notwithstanding the foregoing, to the extent permitted by law and pursuant to such rules as the Committee may adopt, a Participant may authorize the Company to satisfy any such withholding requirement by directing the Company to withhold from any shares of Common Stock to be issued, all or a portion of such number of shares as shall be sufficient to satisfy the withholding obligation. 12. CHANGE OF CONTROL Each outstanding Stock Option shall become immediately and fully exercisable for a period of 6 months following the date of the following occurrences, each constituting a "Change of Control": (i) if any person (including a group as defined in Section 13(d)(3) of the 1934 Act) becomes, directly or indirectly, the beneficial owner of 20% or more of the shares of the Company entitled to vote for the election of directors; 7 (ii) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event cease to constitute a majority of the Company's Board of Directors; or (iii) the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. After such 6-month period the normal option exercise provisions of the Plan shall govern. In the event a Participant is terminated as an employee of the Company within 2 years after any of the events specified in (i), (ii) or (iii), his or her outstanding Stock Options at that date of termination shall become immediately exercisable for a period of 3 months. With respect to Stock Option grants outstanding as of the date of any such Change of Control which require the deposit of owned Common Stock as a condition to obtaining rights: (a) said deposit requirement shall be terminated as of the date of the Change of Control and any such deposited stock shall be promptly returned to the Participant; and (b) any restrictions on the sale of shares issued in respect of any such Stock Option shall lapse. In the event of a Change of Control, a Participant shall vest in all shares of Restricted Stock and Restricted Stock Units, effective as of the date of such Change of Control, and any deposited shares of Common Stock shall be promptly returned to the Participant. 13. TERMINATION OF EMPLOYMENT A. Termination of Exmployment -------------------------- If the Participant's employment by the Company terminates for any reason other than as specified herein or in subsections B, C or D, the Participant's Stock Options shall terminate 3 months after such termination and all shares of Restricted Stock and all Restricted Stock Units which are subject to restriction as of said termination date shall be forfeited by the Participant to the Company. In the event a Participant's employment with the Company is terminated for the convenience of the Company, as determined by the Committee, the Committee, in its sole discretion, may vest such Participant in all or any portion of outstanding Stock Options (which shall become exercisable) and/or shares of Restricted Stock or Restricted Stock Units awarded to such Participant, effective as of the date of such termination. In addition, and notwithstanding the foregoing provisions of this Section 13A, effective for Stock Options granted on or after March 21, 2001, if a Participant's employment with the Company is terminated for the convenience of the Company and for reasons other than cause (as determined by the Committee), and the Participant's combined age and years of service with the Company equal at least 70 at the time of such termination, then the Participant's Stock Options that would have vested within two years from the date of 8 termination shall vest and become immediately exercisable, and shall expire on the earlier of (i) the expiration date of such Stock Options, or (ii) two years following the termination of employment. B. Death ----- If a Participant should die while employed by the Company, any Stock Option previously granted under this Plan may be exercised (i) by the person designated in such Participant's last will and testament or, (ii) in the absence of such designation, by the Participant's estate, or (iii) by the donee of a Stock Option made pursuant to Section 10 (iii), to the full extent that such Stock Option could have been exercised by such Participant immediately prior to death. Further, with respect to outstanding Stock Option grants which, as of the date of death, are not yet exercisable, any such option grant shall vest and become exercisable in a pro-rata amount, based on the full months of employment completed during the full vesting period of the Stock Option from the date of grant to the date of death. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining exercise rights, in the event a Participant should die while employed by the Company, said Stock Options may be exercised as provided in the first paragraph of this Section 13B, subject to the following special conditions: (i) any restrictions on the sale of shares issued in respect of any such Stock Option shall cease; and (ii) any owned Common Stock deposited by the Participant pursuant to said grant shall be promptly returned to the person designated in such Participant's last will and testament or, in the absence of such designation, to the Participant's estate, and all requirements regarding deposit by the Participant shall be terminated. A Participant who dies during any applicable restricted period shall vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date of death. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of death, as a percentage of the applicable restricted period. C. Retirement ---------- The Committee shall determine, at the time of grant, the treatment of the Stock Option upon the retirement of the Participant. Unless other terms are specified in the original Stock Option grant, and except for Stock Options granted on or after March 21, 2001, if the termination of employment is due to a Participant's retirement on or after age 55 with 10 years of service with the Company, the Participant may exercise a Stock Option, subject to the original terms and conditions of the Stock Option. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining rights, any restrictions on the sale of shares issued in respect of any such Stock 9 Option shall lapse at the date of any such retirement. Effective for Stock Options granted on or after March 21, 2001, if a Participant retires on or after reaching age 55 with 10 years of service with the Company, then upon such retirement, such Stock Options shall fully vest and become immediately exercisable and retain the same Expiration Date as determined at the time of grant. A Participant who retires on or after the date he or she attains age 65 shall fully vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the date of retirement (unless any such award specifically provides otherwise). A Participant who takes early retirement (after age 55, but prior to age 65) during any applicable restricted period may elect either of the following alternatives with respect to Restricted Stock or Restricted Stock Units (unless any such award specifically provides otherwise): (a) Leave owned shares on deposit with the Company and vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the earlier of the date the Participant attains age 65 or the termination date of the applicable restricted period; or (b) Withdraw owned shares and vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date the shares on deposit are withdrawn. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of early retirement, as a percentage of the applicable restricted period. D. Spin-offs --------- If the termination of employment is due to the cessation, transfer, or spin-off of a complete line of business of the Company, the Committee, in its sole discretion, shall determine the treatment of all outstanding Awards under the Plan. E. Non-Competition --------------- Effective for Stock Options granted on or after June 21, 1999, recipients of such Stock Options shall not, for a period of two years following termination of their employment with the Company for any reason whatsoever (including retirement), directly or indirectly, (i) own, manage or operate, be employed by, or render consulting, advisory or other services to, any enterprise, corporation or business that owns or operates casual dining restaurants, anywhere in the United States or Canada (a "Competitor"), or (ii) solicit or induce any person who is an employee of the Company to own, manage or operate, be employed by, or render consulting, advisory or other services to, a Competitor. Notwithstanding anything to the contrary contained in paragraphs A through D of this Section 13, upon violation by a Participant of the non-compete provisions of this paragraph E, all of such Participant's outstanding Stock Options will expire on the earlier of (i) the expiration date of the Stock Options, or (ii) three months following the date of employment with a Competitor or other prohibited competitive action. 10 14. AMENDMENTS OF THE PLAN The Plan may be terminated, modified, or amended by the Board of Directors of the Company. The Committee may from time to time prescribe, amend and rescind rules and regulations relating to the Plan. Subject to the approval of the Board of Directors, the Committee may at any time terminate, modify, or suspend the operation of the Plan, provided that no action shall be taken by the Board of Directors or the Committee without the approval of the stockholders of the Company which would: (i) materially increase the number of shares which may be issued under the Plan; (ii) materially increase the benefits accruing to Participants under the Plan; or (iii) materially modify the requirements as to eligibility for participating in the Plan. The Board of Directors shall have authority to cause the Company to take any action related to the Plan which may be required to comply with the provisions of the Securities Act of 1933, as amended, the 1934 Act, and the rules and regulations prescribed by the Securities and Exchange Commission. Any such action shall be at the expense of the Company. No termination, modification, suspension, or amendment of the Plan shall alter or impair the rights of any Participant pursuant to a prior Award without the consent of the Participant. There is no obligation for uniformity of treatment of Participants under the Plan. 15. FOREIGN JURISDICTIONS The Committee may adopt, amend, and terminate such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws of any foreign jurisdiction, to employees of the Company who are subject to such laws and who receive Awards under the Plan. 16. NOTICE All notices to the Company regarding the Plan shall be in writing, effective as of actual receipt by the Company, and shall be sent to: Darden Restaurants, Inc. 5900 Lake Ellenor Dr. Orlando, FL 32809 Attn: General Counsel Effective May 28, 1995; Restated as of September 23, 1999 11 ADDITIONAL INFORMATION CONCERNING DARDEN RESTAURANTS, INC. AMENDED AND RESTATED STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 THIS DOCUMENT, DATED MAY 27, 2001, CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Additional information about this Plan and its administrators may be obtained without charge by writing to the Supervisor, Stock Compensation Plans, Darden Restaurants, Inc., Compensation Department, P.O. Box 593330, Orlando, FL 32859-3330, or by calling (407) 245-4293. 12 Capitalized words used herein have the meanings assigned to them in the Amended and Restated Stock Option and Long-Term Incentive Plan of 1995. Incorporation by Reference - --------------------------- Certain documents, including the Company's latest annual report and future reports filed by the Company pursuant to Section 13(a) or 15(d) of the 1934 Act, are incorporated by reference in this Prospectus. Such incorporated documents, as well as other documents required to be delivered to participants in the Plan, are available to Participants without charge upon written request to: Supervisor, Stock Compensation Plans, Darden Restaurants, Inc., Compensation Department, P.O. Box 593330, Orlando, FL 32859-3330, or by calling (407) 245-4293. ERISA - ----- The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974. Reports to Participants - ----------------------- Plan Participants shall receive periodic reports indicating the amount and status of their Restricted Stock and Stock Option accounts. Purchase of Shares - ----------------- Upon the exercise of a Stock Option or award of Restricted Stock, the Participant shall receive shares of Common Stock with respect to the exercise or award either out of treasury shares held by the Company or through newly issued shares. Periodically, the Company purchases shares of Common Stock on the open market for the treasury. Summary of Federal Tax Consequences - ----------------------------------- The receipt of a grant of a Restricted Stock Award or a Stock Option is not taxable to the employee, and the value thereof is not allowed as a deduction to Darden Restaurants at the grant date. Recipients will be taxed on awards of Restricted Stock on the date the restrictions lapse (unless they make an election under Section 83(b) of the Internal Revenue Code to be taxed on the Fair Market Value of the Restricted Stock on the date of the award). The tax will be based on the fair market value of the Restricted Stock on the date the restrictions lapse, or if the recipient has made an 83(b) election, the Fair Market Value of the Restricted Stock on the date of award. Upon the exercise of a non-qualified stock option, the optionee generally is required to include in ordinary income subject to federal income taxes an amount equal to the excess of the Fair Market Value of the Common Stock on the date the option is exercised over the option price for such stock. Any such amount, to the extent that is constitutes reasonable compensation, is deducted by Darden Restaurants in determining its taxable income. Federal income tax rules provide that losses on sales of stock are deferred for tax purposes if substantially identical stock is acquired within 30 days before or after the sale. The granting of a Stock Option or Restricted Stock is treated as an acquisition identical stock for purposes of this rule. Any loss subject to this limitation is added to the Participants' tax basis in 13 the substantially identical stock and recognized when the substantially identical stock is disposed of in a taxable transaction. Participants who have --------------------- sold Darden Restaurants Common Stock at a loss during the thirty (30) day period - -------------------------------------------------------------------------------- before or after May 30, 1995, may wish to decline this Stock Option grant and/or - -------------------------------------------------------------------------------- Restricted Stock award by returning both copies of the agreement to the Company, - -------------------------------------------------------------------------------- unsigned, with a letter stating that they are declining to accept this Stock - -------------------------------------------------------------------------------- Option grant and/or award of Restricted Stock. Participants having questions - ---------------------------------------------- regarding this tax rule should contact R.F. Faisant, Vice President, Taxes. Participants are responsible for the payment of all federal, state, and local withholding taxes in respect of the exercise of a Stock Option and the vesting of Restricted Stock. To the extent permitted by law and the Plan, a Participant may authorize the Company to withhold shares to be issued for a Stock Option exercise or upon the vesting of Restricted Stock in satisfaction of the withholding obligation. The tax consequences of the Plan, as set forth above, may depend upon the participant's personal tax circumstances, may vary from state to state and may change subsequent to the date of this Prospectus. Participants should consult with their own tax advisors. 14 EX-10 3 exh10kloan.txt EXHIBIT 10(K), LOANDOC, 10-K FY01 EXHIBIT 10(k) NON-NEGOTIABLE PROMISSORY NOTE $ ___________________ _______________, 20__ FOR VALUE RECEIVED, (the "Maker") promises to pay to the order of GMRI, Inc., a Florida corporation (which together with any successor, assignee or endorsee is hereinafter referred to as the "Holder"), at 5900 Lake Ellenor Drive, Orlando, Florida 32809, or at such other place as the Holder may designate in writing, in lawful money of the United States of America, the principal sum of ______________ and ____/100 Dollars ($_______), together with interest as described below and in accordance with the following terms and provisions: 1. Interest Rate; Default Interest Rate. Interest will accrue on the ------------------------------------ outstanding principal balance of this Note at a rate of ______% (the applicable federal rate for mid-term loans with semi-annual compounding for the month in which the Note is executed) per annum. In addition, after a default by the Maker under this Note or under any document securing payment of this Note, interest will accrue on the outstanding principal balance hereof at a rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate permitted by law. 2. Interest Payments. For so long as the Maker remains on the active ----------------- payroll of Darden Restaurants, Inc. or any of its wholly owned subsidiaries (the "Company"), accrued interest will be payable in arrears beginning in weekly installments by automatic payroll deduction on each successive payroll payment date of the Company during the term of this Note until all outstanding principal and interest under this Note have been paid in full. If the Maker leaves the active payroll of the Company prior to full and final payment of this Note and does so without triggering a default or accelerated maturity under the Note, then accrued interest will be payable in arrears in monthly installments beginning on the first day of the first full calendar month following the Maker's change in payroll status and continuing on the first day of each successive calendar month until all outstanding principal and interest under this Note have been paid in full. All prorations and other determinations of interest payable under this Note will be calculated on the basis of the actual number of days in the calendar week, calendar month or calendar year for which such proration or determination is being made, and the actual number of days during which the principal balance remains outstanding. Unpaid interest will be compounded semiannually. 3. Principal Payments. Payment of the principal of this Note will be ------------------ made in three installments on the fifth, sixth and seventh anniversary of the date of this Note. Twenty-five percent (25%) of the then outstanding principal balance of this Note will be due and payable on each of the fifth and sixth anniversaries of the date hereof. On the seventh anniversary of the date of this Note, the entire remaining outstanding principal balance together with all accrued unpaid interest will be due and payable. 4. Security and Purpose of Loan. The Maker's payment and performance of ---------------------------- all the terms and conditions of this Note are secured by a stock pledge agreement of even date herewith executed by the Maker and the Holder (the "Pledge Agreement"). The loan evidenced by this Note is made to assist the Maker in satisfying the terms and conditions of the Fiscal 1998 Stock Purchase/Option Award of Darden Restaurants, Inc. (the "2000 Award"). The Maker will use all proceeds of the loan to purchase "Deposit Shares," as defined in the Special Terms and Conditions of the 2000 Award, and for no other purpose. 5. Prepayment. This Note may be prepaid in whole or in part at any ---------- time without penalty. In addition, partial prepayments of principal will be made by the Maker if required under the Pledge Agreement. 6. Default and Accelerated Maturity. If any amount under this Note or -------------------------------- under the Pledge Agreement is not paid when due and such default continues for five (5) days thereafter, the entire principal balance of this Note and all accrued interest thereon will become immediately due and payable. If any covenant, term, condition or other provision in this Note or in the Pledge Agreement is not performed, fulfilled, satisfied or met as promised or required, and such failure does not constitute a monetary default triggering acceleration under the preceding sentence, then the Holder will notify the Maker of the default. If the default is not fully rectified and cured within fifteen (15) days after the date of the notice, the entire principal balance of this Note and all accrued interest thereon will become immediately due and payable. Without limiting the generality of the foregoing, the entire outstanding principal balance of this Note, together with all accrued interest thereon, will become immediately due and payable without notice on the following dates: (a) the date of any voluntary or involuntary termination of the Maker's employment with the Company, provided that this subsection will not apply to termination of the Maker's employment by (i) death of the Maker, provided the debt evidenced by this Note is assumed in writing by all heirs, beneficiaries and other persons or entities succeeding to the Maker's ownership interest in all or any portion of the "Collateral" (as defined in the Pledge Agreement) within ninety (90) days after the Maker's death, (ii) retirement after age 55 with at least ten years of service with the Company or its predecessors or (iii) if approved in writing by the Holder in its sole discretion, early retirement; (b) the date on which the "Collateral" (as defined in the Pledge Agreement) is withdrawn from the pledge account securing this Note, provided that if the "Collateral" is only partially withdrawn, principal and accrued interest under this Note will be payable in the amounts specified in the Pledge Agreement; and (c) if the Maker has by that date failed to purchase and place on deposit sufficient "Deposit Shares" to satisfy his or her "Minimum Eligibility Requirement" as more particularly provided and as such terms are defined in the Special Terms and Conditions of the 2000 Award. 7. Right of Set-Off. The Maker expressly agrees that, if a default or ---------------- accelerated maturity occurs pursuant to Section 6 of this Note, the Holder has a right of set-off to satisfy the debt evidenced by this Note. The right of set-off will entitle the Holder (a) to withhold any payments owing from the Company to the Maker, including but not limited to salary and bonus payments, pension and retirement benefits, and expense reimbursements, and (b) to draw upon any account maintained by the Company or its agent for the benefit of the Maker or in the Maker's name. The Holder will provide written notice to the Maker prior to exercising this right of set-off. 8. Late Charge. The Maker will pay to the Holder a late charge equal to ----------- five percent (5%) of any amount due under this Note but not received by the Holder within fifteen (15) days after the due date. The Maker agrees that the late charge will be collected not as a penalty, but as compensation to the Holder for the costs of collecting the late payment. This provision will not be construed to extend the due date for any amount required to be paid under this Note. The Holder will have no obligation to accept any late payment not accompanied by the required late charge. 9. Waiver; Extensions. Presentment, demand, notice of dishonor, the ------------------ homestead exemption, and all other exemptions provided the Maker are waived. No delay, failure or omission by the Holder in exercising any of its rights hereunder or at law or in equity (including, without limitation, the right of acceleration) will be construed as a novation of this Note or will operate as a waiver or prevent the subsequent exercise of any or all of such rights. Acceptance by the Holder of any sum payable under this Note, whether before, on or after the due date of such payment, will not be a waiver of the Holder's right to require prompt payment when due of all other sums payable under this Note or to exercise any of the Holder's rights, powers or remedies under this Note. No extension of the time for any payment under this Note will operate to release, discharge, modify, or otherwise affect the liability of the Maker unless the Holder agrees in writing. 10. Collection Costs, Documentary Stamp Tax and Other Expenses. The -------------------------------------------------------------- Maker will pay all costs, fees and expenses (including court costs and attorneys' fees) incurred by the Holder in collecting or attempting to collect any amount that becomes due under this Note or in seeking legal advice with respect to a default under this Note. In addition, the Maker will pay all costs and expenses arising out of the execution and delivery of this Note, including but not limited to all documentary stamp taxes and other taxes that may be charged or imposed by local, state or federal governments. 11. Governing Law; Usury. This Agreement will be governed by Florida -------------------- Law. It is the intention of the Maker and the Holder to comply with the usury laws of the United States and the State of Florida. Accordingly, it is agreed that, notwithstanding any provision in this Note to the contrary, this Note will not require the payment of, or permit the collection of interest in excess of the maximum permitted by law. 12. Notices. All notices, requests, demands and other communications ------- with respect to this Note will be in writing and will be delivered by hand, sent prepaid by air courier or sent by the United States mail, certified, postage prepaid, return receipt requested, at the addresses designated below: If to Holder: GMRI, Inc. Attn: Vice President - Compensation & Benefits 5900 Lake Ellenor Drive Orlando, Florida 32809 If to Maker: ____________________________________________ ____________________________________________ ____________________________________________ Any notice, request, demand or other communication delivered or sent in such manner will be deemed given or made when actually received by the intended recipient. Rejection or other refusal to accept, or the inability to deliver because of a changed address of which no notice was given, will be deemed to be receipt of the notice, request, demand or other communication sent. The Maker or the Holder may change its address by notifying the other party of the new address in any manner permitted by this section. 13. Amendments Only in Writing. This Note or any provision hereof may -------------------------- be waived, changed, modified or discharged only by an agreement in writing signed by the Maker and the Holder. 14. Time of Essence. TIME IS OF THE ESSENCE with respect to the --------------- performance by the Maker of each of its obligations hereunder. 15. Authorization for Payroll Deduction. The Maker authorizes the -------------------------------------- Company to deduct amounts due under this Note from payroll installments payable by the Company to the Maker. The Maker agrees that all interest payments due under this Note will be made by way of payroll deduction for so long as the Maker remains on the Company's active payroll, and that no additional authorization, consent or notice will be required for the Company to commence or continue payroll deduction for these purposes. IN WITNESS WHEREOF, the Maker has executed this Note in the County of ________________, _______________________________. _______________________________________ Name:__________________________________ COUNTY OF __________________________ STATE OF __________________________ This instrument was executed before me and in my presence this ________ day of __________________, 2000, in ___________ County, ____________ by ___________________________. _______________________________________ Notary Public My Commission Expires:_________________ STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT dated as of __________, 20__ (the "Agreement"), by and between __________________ (the "Pledgor"), ______________ (the "Pledgor's Spouse") and GMRI, Inc., a Florida corporation (the "Secured Party"), recites and provides: RECITALS - -------- The Pledgor has executed and delivered a promissory note of even date herewith (the "Note") made by the Pledgor payable to the order of the Secured Party in the principal amount of $__________, together with accrued interest thereon at the rate of ___% (the applicable federal rate for mid-term loans with semi-annual compounding for the month in which the Note is executed) per annum. The Pledgor has agreed to pledge and deliver to the Secured Party as security for the payment of the indebtedness evidenced by the Note, _____ shares of common stock of Darden Restaurants, Inc., a Florida corporation, in accordance with the terms and conditions set forth in this Agreement. The Pledgor's Spouse has agreed to join in the execution of this Agreement to release all marital property rights, if any, in and to the "Collateral" (defined below). PLEDGE AGREEMENT - ---------------- NOW, THEREFORE, the parties to this Agreement agree as follows: 1. Pledge of Collateral. The Pledgor hereby assigns and delivers to the -------------------- Secured Party, with appropriate stock powers and endorsements in blank or other appropriate instruments of assignment, ______ shares of common stock of Darden Restaurants, Inc. (Such securities, and any replacements or substitutions thereof, and all accessions thereto, are referred to in this document as the "Collateral"). All of the Collateral will be held by the Secured Party subject to the terms and conditions of this Agreement. 2. Certificates. The Pledgor agrees to deliver promptly to the Secured ------------ Party, with stock powers or endorsements in blank or other appropriate instruments of assignment, all certificates (if any) representing stock dividends or stock splits or rights to purchase or subscribe for additional stock, or other rights, accessions or increments with respect to any securities constituting a portion of the Collateral. Such certificates (if any) will be held by the Secured Party subject to the terms and conditions of this Agreement. 3. Secured Indebtedness. This pledge of the Collateral secures all --------------------- indebtedness of the Pledgor to the Secured Party evidenced by the Note,including any attorney's fees and other expenses incurred in the collection of the Note. 4. Satisfaction of Indebtedness. Upon payment of the entire indebtedness ---------------------------- of the Pledgor to the Secured Party evidenced by the Note, this Agreement will terminate and all the Collateral will be returned and delivered by the Secured Party to the Pledgor. 5. Reduction of Collateral. The Secured Party has granted to the ----------------------- Pledgor a certain stock option award dated, pursuant to the Fiscal 1998 Stock Purchase/Option Award of Darden Restaurants, Inc. (the "2000 Award"). Under certain circumstances, more particularly described in the Special Terms and Conditions of the 2000 Award, the Pledgor may be entitled to reduce the Collateral conditioned, however, on a pro rata payment of the indebtedness evidenced by the Note. In the event the Pledgor becomes entitled to reduce the Collateral under the 2000 Award, the Pledgor will notify the Secured Party and simultaneously pay to the Secured Party an amount (the "Paydown") equal to the principal then outstanding under the Note times a fraction, the numerator of which equals the number of shares of common stock by which the Collateral is to be reduced and the denominator of which equals the number of shares of common stock comprising the Collateral prior to the reduction. The Secured Party will apply the Paydown against the indebtedness evidenced by the Note and release to the Pledgor the number of shares of common stock by which the Collateral is to be reduced. After full vesting of all Options granted to the Pledgor under the 2000 Award, provided the Pledgor is not then in default under this Agreement or under the Note, the Pledgor may be entitled to reduce the Collateral upon making payments of principal under the Note. The Pledgor will notify the Secured Party at the time of the principal payment that a reduction of the Collateral is requested. Upon receipt of the principal payment and the accompanying notice, the Secured Party will reduce the Collateral by the number of shares of common stock that equals the total of all shares then comprising the Collateral times a fraction, the numerator of which is the amount of principal being paid and the denominator of which is the total outstanding principal under the Note prior to the payment. Except as permitted by the 2000 Award or this Agreement, the Collateral may not be reduced or otherwise released prior to the full and final payment of all indebtedness evidenced by the Note. 6. Pledgor's Representation. The Pledgor represents, warrants and ------------------------ covenants that he or she is the lawful owner of all of the Collateral, free and clear of all liens or claims of any sort whatsoever, other than the lien established by this Agreement, and that he or she will maintain the Collateral free of all such liens or claims until all indebtedness evidenced by the Note is fully and finally paid. 7. Further Assurances. The Pledgor covenants and agrees to execute and ------------------ deliver or cause to be executed and delivered, and to do or make or cause to be done or made, upon the request of the Secured Party, any and all agreements, instruments, acts or things, supplemental, confirmatory or otherwise, as may reasonably be required by the Secured Party for the purpose of, or in connection with, perfecting and completing the pledge of the Collateral in accordance with the terms and conditions of this Agreement. 8. Dividends and Voting Rights. So long as there exists no event of ----------------------------- default under this Agreement or under the Note, subject to the provisions of paragraphs 2 and 9 hereof, the Pledgor will have and enjoy all rights attaching to the Collateral, including the right to receive all dividends and the right to exercise any and all voting rights. 9. Default and Remedies. In the event of any default by the Pledgor in -------------------- the payment of any sum under this Agreement or any indebtedness of the Pledgor evidenced by the Note, which default continues for a period of five (5) days, or any other default under the Note or under this Agreement which continues for a period of fifteen (15) days after written notice given by the Secured Party to the Pledgor in accordance with the provisions of the Note, all right, title and ownership in and to the Collateral will transfer ipso facto to the Secured Party, at its option. The transfer of the Collateral to the Secured Party will include all rights attaching to the Collateral, including the right to receive all dividends and the right to exercise any and all voting rights. Such transfer and delivery of the Collateral will be accepted by the Secured Party in full or partial satisfaction of the outstanding indebtedness evidenced by the Note, which indebtedness will be reduced by an amount equal to the value of the Collateral on the date of its delivery to the Secured Party. The value of the Collateral will be calculated on the basis of the closing price of Darden Restaurants, Inc. common stock on the New York Stock Exchange on the date of transfer to the Secured Party. If the value of the Collateral is insufficient to discharge the outstanding indebtedness and other costs and expenses owed under the Note and this Agreement, the Pledgor will remain liable for the deficiency. If the value of the Collateral equals or exceeds the outstanding indebtedness and other costs and expenses owed under the Note and this Agreement, the Secured Party will transfer to the Pledgor any overage in the form of common stock of Darden Restaurants, Inc. with a cash payment for any fractional share, and thereafter the Pledgor will have no other or further liability arising from such indebtedness. 10. Expenses. The Pledgor will pay any and all expenses related to the -------- execution of this Agreement and pledge of the Collateral, including any taxes or assessments imposed by local, state or federal governments. The Pledgor will also pay all costs of collection and enforcement of this Agreement and the Note (including reasonable attorneys' fees) in the event of default or failure of the Pledgor to fulfill any term, covenant or condition under this Agreement, the Note, or the 2000 Award. Any other expenses incurred in connection with this Agreement or the pledge of the Collateral hereunder will be borne by the Secured Party and will not be charged against or paid from the Collateral. 11. Binding Agreement; Governing Law. This Pledge Agreement will bind ----------------------------------- the parties hereto and their respective heirs, personal representatives, successors and assigns. This Agreement will be governed by Florida Law. 12. Joinder of Pledgor's Spouse. The Pledgor's Spouse joins in the -----------=----------------- execution of this Agreement to evidence his or her consent to the pledge of the Collateral by the Pledgor, and to release any and all marital rights that may exist in and to the Collateral. IN WITNESS WHEREOF, the Pledgor, the Pledgor's Spouse and the Secured Party have executed or caused this Pledge Agreement to be executed in their names as of the date first above written. PLEDGOR PLEDGOR'S SPOUSE _____________________________________ ____________________________________ Name:________________________________ Name:_______________________________ SECURED PARTY GMRI, INC. By: ______________________________________________ Title: ______________________________________________ COUNTY OF _________________________ STATE OF _________________________ This instrument was executed before me and in my presence this _______ day of ____________________, 20__, in ________ County, ___________, by _______________. ________________________________________ Notary Public My Commission Expires:__________________ COUNTY OF ________________________ STATE OF ________________________ This instrument was executed before me and in my presence this ___ day of ____________, 20___, in _____________ County, _____________ by ________________. ________________________________________ Notary Public My Commission Expires:__________________ COUNTY OF __________________________ STATE OF __________________________ The foregoing instrument was acknowledged before me this ___ day of __________, 20___, by _____________________________ of GMRI, Inc., a Florida corporation, on behalf of the corporation. ________________________________________ Notary Public My Commission Expires:__________________ EX-12 4 exh12.txt EXHIBIT 12, 10-K FY01 EXHIBIT 12 DARDEN RESTAURANTS, INC. COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands)
Fiscal Year Ended --------------------------------------------------------------------------------------------------------------------- May 27, May 28, May 30, May 31, May 25, 2001 2000 1999 1998 1997 --------------------------------------------------------------------------------------------------------------------- Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or (Credit), Net, and Income Taxes........$ 301,217 $ 267,976 $207,414 $ 153,672 $ 75,401 Plus Fixed Charges..................... 54,548 43,833 39,929 38,569 39,582 Less Capitalized Interest.............. (3,671) (1,910) (593) (1,018) (739) --------- ---------- -------- ---------- ---------- Consolidated Earnings from Operations before Restructuring and Asset Impairment Expense or (Credit), Net, and Income Taxes Available to Cover Fixed Charges.......$ 352,094 $ 309,899 $ 246,750 $ 191,223 $ 114,244 ========= ========== ========== ========== ========= Ratio of Consolidated Earnings to Fixed Charges.......................... 6.45 7.07 6.18 4.96 2.89 ========= ========== ========== =========== ========= ---------------------------------------------------------------------------------------------------------------------
EX-13 5 exh13.txt EXHIBIT 13 - MDA EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 18 As of May 27, 2001, Darden Restaurants, Inc. (Darden or the Company) operated 1,168 Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones BBQ Sports Bar restaurants in the U.S. and Canada and licensed 34 restaurants in Japan. All of the restaurants in the U.S. and Canada are operated by the Company with no franchising. This discussion should be read in conjunction with the business information and the consolidated financial statements and related notes found elsewhere in this report. Darden's fiscal year ends on the last Sunday in May. Fiscal years ended 2001, 2000, and 1999 each consisted of 52 weeks of operation. REVENUES Total revenues in 2001 were $4.02 billion, an 8.6 percent increase from 2000. Total revenues in 2000 were $3.70 billion, a 7.0 percent increase from 1999. COSTS AND EXPENSES Food and beverage costs for both 2001 and 2000 were 32.4 percent of sales, a decrease of 0.4 percentage points from 1999. The comparability in 2001 and 2000 food and beverage costs, as a percentage of sales, is primarily a result of favorable menu-mix changes, pricing changes, and other efficiencies resulting from higher sales volumes, offset by higher product costs. The decrease in food and beverage costs in 2000 from 1999, as a percentage of sales, is primarily attributable to pricing, margin improving initiatives such as waste reduction, and a lower-margin promotion run by Red Lobster during the first quarter of 1999. Restaurant labor decreased in 2001 to 31.4 percent of sales, compared to 31.9 percent of sales in 2000 and 32.3 percent of sales in 1999 primarily due to efficiencies resulting from higher sales volumes. Restaurant expenses (primarily lease expenses, property taxes, credit card fees, utilities, and workers' compensation costs) amounted to 14.2 percent of sales in 2001, which was comparable to the 14.1 and 14.3 percent of sales levels in 2000 and 1999, respectively. The comparability is a result of higher sales volumes and the fixed component of these expenses which are not impacted by higher sales volumes, offset by higher utility costs. Selling, general, and administrative expenses decreased in 2001 to 10.1 percent of sales, compared to 10.3 percent in 2000 and 10.4 percent in 1999. The decrease in 2001 is principally a result of reduced marketing expenses as a percent of sales, partially offset by additional labor costs associated with new concept expansion and development. Depreciation and amortization expense of 3.7 percent of sales in 2001 increased from 3.5 percent in 2000 and 3.6 percent in 1999 primarily as a result of new restaurant and remodel activity, partially offset by the favorable impact of higher sales volumes. Interest expense increased to 0.8 percent of sales in 2001, compared to 0.6 percent of sales in 2000 and 1999. The increase is primarily due to higher debt levels in 2001. INCOME FROM OPERATIONS Pre-tax earnings increased by 12.4 percent in 2001 to $301.2 million, compared to $268.0 million (before net restructuring and asset impairment credit) in 2000 and $207.4 million (before net restructuring credit) in 1999. The increase in 2001 was primarily attributable to annual same-restaurant sales increases in the U.S. for both Red Lobster and Olive Garden totaling 5.9 percent and 7.2 percent, respectively. The increase in 2000 was mainly attributable to annual same-restaurant sales increases in the U.S. for both Red Lobster and Olive Garden totaling 7.6 percent and 7.2 percent, respectively. Red Lobster and Olive Garden have enjoyed 14 and 27 consecutive quarters of U.S. same-restaurant sales increases, respectively. PROVISION FOR INCOME TAXES The effective tax rate for 2001 was 34.6 percent, compared to 35.4 percent in 2000 (before net restructuring and asset impairment credit) and 34.8 percent in 1999 (before net restructuring credit). The decrease in the effective tax rate from 2000 to 2001 resulted primarily from increases in income tax credits and deductions that were not available in 2000. The increase in the effective tax rate from 1999 to 2000 is primarily a result of higher 2000 pre-tax earnings. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 19 NET EARNINGS AND NET EARNINGS PER SHARE BEFORE NET RESTRUCTURING AND ASSET IMPAIRMENT CREDIT Net earnings for 2001 of $197.0 million, or $1.59 per diluted share, increased 13.8 percent, compared to 2000 net earnings before net restructuring and asset impairment credit of $173.1 million, or $1.31 per diluted share. Net earnings before net restructuring and asset impairment credit for 2000 increased 27.9 percent, compared to net earnings before restructuring credit for 1999 of $135.3 million, or 96 cents per diluted share. NET EARNINGS AND NET EARNINGS PER SHARE Net earnings for 2001 of $197.0 million ($1.59 per diluted share) compared with net earnings after net restructuring and asset impairment credit for 2000 of $176.7 million ($1.34 per diluted share) and net earnings after restructuring credit of $140.5 million ($0.99 per diluted share). During 1997, an after-tax restructuring and asset impairment charge of $145.4 million ($0.93 per diluted share) was taken related to low-performing restaurant properties in the U.S. and Canada and other long-lived assets, including those restaurants that have been closed. The pre-tax charge included approximately $160.7 million of non-cash charges primarily related to the write-down of buildings and equipment to net realizable value and approximately $69.2 million of charges to be settled in cash related to carrying costs of buildings and equipment prior to their disposal, lease buy-out provisions, employee severance and other costs. Cash required to carry out these activities is being provided by operations and the sale of closed properties. After-tax restructuring credits of $5.2 million and $5.2 million were taken in the fourth quarter of 2000 and 1999, respectively, as the Company reversed portions of its 1997 restructuring liability. The 2000 reversal primarily resulted from favorable lease terminations. The 1999 reversal primarily resulted from the Company's decision to close fewer restaurants than identified for closure as part of the initial restructuring action. The credits had no effect on the Company's cash flow. During 2000, an after-tax asset impairment charge of $1.6 million was taken in the fourth quarter related to additional write-downs of the value of properties held for disposition. FINANCIAL CONDITION Short-term debt totaled $12.0 million as of May 27, 2001, down from $115.0 million at May 28, 2000. The decrease resulted primarily from the Company's issuance of long-term debt in which the proceeds were used to repay short-term debt. LIQUIDITY AND CAPITAL RESOURCES The Company intends to manage its business and its financial ratios to maintain an investment grade bond rating, which allows access to financing at reasonable costs. Currently, the Company's publicly issued long-term debt carries "Baa1" (Moody's Investors Service), "BBB+" (Standard & Poor's) and "BBB+" (Fitch) ratings. The Company's commercial paper has ratings of "P-2" (Moody's Investors Service), "A-2" (Standard & Poor's) and "F-2" (Fitch). Such ratings are only accurate as of the date of this report and have been obtained with the understanding that Moody's Investors Service, Standard & Poor's, and Fitch will continue to monitor the credit of the Company and make future adjustments to such ratings to the extent warranted. The ratings may be changed, superseded, or withdrawn at any time. Darden's long-term debt includes $150 million of unsecured 6.375 percent notes due in February 2006 and $100 million of unsecured 7.125 percent debentures due in February 2016. In September 2000, the Company also issued $150 million of unsecured 8.375 percent senior notes due in September 2005. Proceeds of the issuance were used to repay short-term debt. In November 2000, Darden filed a prospectus supplement with the Securities and Exchange Commission allowing the Company to offer up to $350 million of medium-term notes from time to time. The notes will be unsecured, may bear interest at either fixed or floating rates, and may have maturity dates of nine months or more after issuance. In April 2001, the Company issued $75 million of 7.45 percent fixed rate notes under this program with a maturity date of April 2011. Proceeds of the issuance were used to repay short-term debt. As of May 27, 2001, Darden's long-term debt also includes a $44.5 million commercial bank loan that is used to support two loans from the Company to the Employee Stock Ownership Plan portion of the Darden Savings Plan. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 20 The Company has a commercial paper program that serves as its primary source of short-term financing. As of May 27, 2001, there were $12 million of borrowings outstanding under the program. To support the program, the Company has a credit facility with a consortium of banks under which the Company can borrow up to $300 million. As of May 27, 2001, no amounts were outstanding under the credit facility. The credit facility expires in October 2004 and contains various restrictive covenants, such as maximum debt to capital ratios. None of these covenants is expected to impact the Company's liquidity or capital resources. The Company's adjusted debt-to-adjusted-total capital ratio (which includes 6.25 times the total annual restaurant minimum rent and 3.00 times the total annual restaurant equipment minimum rent as a component of adjusted debt and adjusted total capital) was 44 percent and 42 percent at May 27, 2001, and May 28, 2000, respectively. The Company's fixed-charge coverage ratio, which measures the number of times each year that the Company earns enough to cover its fixed charges, amounted to 6.5 times and 7.1 times at May 27, 2001, and May 28, 2000, respectively. Based on these ratios, the Company believes its financial condition remains strong. The composition of the Company's capital structure is shown in the following table.
May 27, 2001 May 28, 2000 CAPITAL STRUCTURE $ In millions $ In millions - -------------------------------------------------------------------------------------------------------------------- Short-term debt $ 12.0 $ 115.0 Long-term debt 520.6 306.6 - -------------------------------------------------------------------------------------------------------------------- Total debt 532.6 421.6 Stockholders' equity 1,035.2 960.5 - -------------------------------------------------------------------------------------------------------------------- Total capital $ 1,567.8 $ 1,382.1 ==================================================================================================================== ADJUSTMENTS TO CAPITAL - -------------------------------------------------------------------------------------------------------------------- Leases-debt equivalent 275.1 264.8 Adjusted total debt 807.7 686.4 Adjusted total capital $ 1,842.9 $ 1,646.9 Debt-to-total capital ratio 34% 31% Adjusted debt-to-adjusted total capital ratio 44% 42% ====================================================================================================================
In 2001, 2000, and 1999, the Company declared eight cents per share in annual dividends paid in two installments. In March 2000, the Company's Board approved an additional authorization for the ongoing stock buy-back plan whereby the Company may purchase on the open market up to 20.0 million additional shares of Darden common stock. This buy-back authorization is in addition to previously approved authorizations by the Board covering open market purchases of up to 44.6 million shares of Darden common stock. In 2001, 2000, and 1999, the Company purchased treasury stock totaling $177 million, $202 million, and $228 million, respectively. As of May 27, 2001, a total of 52.5 million shares have been purchased under the various stock buy-back plan authorizations. The Company generated $421 million, $343 million, and $358 million in funds from operating activities during 2001, 2000, and 1999, respectively. The Company requires capital principally for building new restaurants, replacing equipment and remodeling existing restaurants. Capital expenditures were $355 million in 2001, compared to $269 million in 2000, and $124 million in 1999. The increased expenditures in 2001 and 2000 resulted primarily from new restaurant growth as well as remodeling activity at Olive Garden and Red Lobster restaurants. The 2001, 2000, and 1999 capital expenditures, treasury stock purchases, and dividend requirements were financed primarily through internally generated funds and the issuance of commercial paper. This has resulted in the Company carrying current liabilities in excess of current assets. The Company estimates that its 2002 capital expenditures will be slightly more in amount to that of 2001. The Company is not aware of any other trends or events that would materially affect its capital requirements or liquidity. The Company believes that its internal cash generating capabilities and short-term borrowings available through its commercial paper program should be sufficient to finance its capital expenditures and other operating activities through fiscal 2002. IMPACT OF INFLATION For 2001, 2000, and 1999, management does not believe that inflation has had a significant overall effect on the Company's operations. As operating expenses increase, management believes the Company has historically been able to pass on increased costs through menu price increases and other strategies. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 21 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of market risks, including fluctuations in interest rates, foreign currency exchange rates, and commodity prices. To manage this exposure, Darden periodically enters into interest rate, foreign currency exchange, and commodity instruments for other than trading purposes. The Company uses the variance/covariance method to measure value at risk, over time horizons ranging from one week to one year, at the 95 percent confidence level. As of May 27, 2001, the Company's potential losses in future net earnings resulting from changes in foreign currency exchange rates, commodity prices, and floating rate debt interest rate exposures were approximately $1 million over a period of one year. The Company issued $225 million of new long-term fixed rate debt during fiscal 2001. The value at risk from an increase in the fair value of all of the Company's long-term fixed rate debt, over a period of one year, was approximately $40 million. The fair value of the Company's long-term fixed rate debt during fiscal 2001 averaged $359 million, with a high of $472 million and a low of $229 million. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed rate debt. FUTURE APPLICATION OF ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Gains or losses resulting from changes in the fair values of those derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. In June 1999, the FASB issued SFAS 137, which deferred the effective date of adoption of SFAS 133 for one year. In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivative instruments and hedging activities, must be adopted concurrently with SFAS 133. The Company adopted SFAS 133 and SFAS 138 in the first quarter of fiscal 2002. Adoption of SFAS 133 and SFAS 138 did not materially impact the Company's consolidated financial position, results of operations or cash flows. FORWARD-LOOKING STATEMENTS Certain statements included in this report are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words or phases such as "believe", "plan", "will", "expect", "intend", "is anticipated", "estimate", "project", and similar expressions are intended to identify forward-looking statements. All of these statements, and any other statements in this report that are not historical facts, are forward-looking. Examples of forward-looking statements include, but are not limited to, projections regarding expected casual dining sales growth; the ability of the casual dining segment to weather economic downturns; demographic trends; the Company's expansion plans and business development activities; and the Company's long-term goals of increasing market share, expanding margins on incremental sales, and growing earnings 15 percent to 20 percent per year on a compound annual basis. Forward-looking statements are based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results. These risks and uncertainties include, but are not limited to, (i) the highly competitive nature of the restaurant industry, especially pricing, service, location, personnel, and type and quality of food; (ii) economic, market, and other conditions, including changes in consumer preferences and demographic trends; (iii) changes in food and other costs, and the general impact of inflation; (iv) the availability of desirable restaurant locations; (v) government regulations, including those relating to zoning, land use, environmental matters, and liquor licenses; and (vi) growth plans, including real estate development and construction activities, the issuance and renewal of licenses, and permits for restaurant development and the availability of funds to finance growth. If the Company's projections and estimates regarding these key factors differ materially from what actually occurs, the Company's actual results could vary significantly from the performance projected in its forward-looking statements. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 22 REPORT OF MANAGEMENT RESPONSIBILITIES The management of Darden Restaurants, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles, using management's best estimates and judgments where appropriate. The financial information throughout this report is consistent with our consolidated financial statements. Management has established a system of internal controls that provides reasonable assurance that assets are adequately safeguarded, and transactions are recorded accurately, in all material respects, in accordance with management's authorization. We maintain a strong audit program that independently evaluates the adequacy and effectiveness of internal controls. Our internal controls provide for appropriate separation of duties and responsibilities, and there are documented policies regarding utilization of Company assets and proper financial reporting. These formally stated and regularly communicated policies set high standards of ethical conduct for all employees. The Audit Committee of the Board of Directors meets regularly to determine that management, internal auditors, and independent auditors are properly discharging their duties regarding internal control and financial reporting. The independent auditors, internal auditors, and employees have full and free access to the Audit Committee at any time. KPMG LLP, independent certified public accountants, are retained to audit the consolidated financial statements. Their report follows. /s/ Joe R. Lee Joe R. Lee Chairman of the Board and Chief Executive Officer INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Darden Restaurants, Inc. We have audited the accompanying consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 27, 2001, and May 28, 2000, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended May 27, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Darden Restaurants, Inc. and subsidiaries as of May 27, 2001, and May 28, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended May 27, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Orlando, Florida June 15, 2001 DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 23 CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) May 27, 2001 May 28, 2000 May 30, 1999 - -------------------------------------------------------------------------------------------------------------------- Sales $4,021,157 $3,701,256 $ 3,458,107 Costs and Expenses: Cost of sales: Food and beverage 1,302,926 1,199,709 1,133,705 Restaurant labor 1,261,837 1,181,156 1,117,401 Restaurant expenses 569,963 519,832 493,811 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $3,134,726 $2,900,697 $ 2,744,917 Selling, general and administrative 407,685 379,731 360,909 Depreciation and amortization 146,864 130,464 125,327 Interest, net 30,664 22,388 19,540 Restructuring and asset impairment credit, net (5,931) (8,461) - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $3,719,939 $3,427,349 $ 3,242,232 - -------------------------------------------------------------------------------------------------------------------- Earnings before Income Taxes 301,218 273,907 215,875 Income Taxes 104,218 97,202 75,337 - -------------------------------------------------------------------------------------------------------------------- Net Earnings $ 197,000 $ 176,705 $ 140,538 ==================================================================================================================== Net Earnings per Share: Basic $ 1.64 $ 1.38 $ 1.02 Diluted $ 1.59 $ 1.34 $ 0.99 ==================================================================================================================== Average Number of Common Shares Outstanding: Basic 119,800 128,500 137,300 Diluted 123,800 131,900 141,400 ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 24 CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------- (In thousands) May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 61,814 $ 26,102 Receivables 32,870 27,962 Inventories 148,429 142,187 Net assets held for disposal 10,087 19,614 Prepaid expenses and other current assets 26,942 26,525 Deferred income taxes 48,000 48,070 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets $ 328,142 $ 290,460 Land, Buildings and Equipment 1,779,515 1,578,541 Other Assets 110,801 102,422 - -------------------------------------------------------------------------------------------------------------------- Total Assets $ 2,218,458 $ 1,971,423 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 156,859 $ 140,487 Short-term debt 12,000 115,000 Current portion of long-term debt 2,647 2,513 Accrued payroll 82,588 77,805 Accrued income taxes 47,698 33,256 Other accrued taxes 27,429 25,524 Other current liabilities 225,037 212,302 - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities $ 554,258 $ 606,887 Long-term Debt 517,927 304,073 Deferred Income Taxes 90,782 79,102 Other Liabilities 20,249 20,891 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities $ 1,183,216 $ 1,010,953 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock and surplus, no par value. Authorized 500,000 shares; issued 169,299 and 165,977 shares, respectively; outstanding 117,380 and 122,192 shares, respectively $ 1,405,799 $ 1,351,707 Preferred stock, no par value. Authorized 25,000 shares; none issued and outstanding Retained earnings 532,121 344,579 Treasury stock, 51,919 and 43,785 shares, at cost (840,254) (666,837) Accumulated other comprehensive income (13,102) (12,457) Unearned compensation (49,322) (56,522) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity $ 1,035,242 $ 960,470 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' $ 2,218,458 $ 1,971,423 Equity ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 25 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------- Common Accumulated Stock Other Total and Retained Treasury Comprehensive Unearned Stockholders' (In thousands, except per share data) Surplus Earnings Stock Income Compensation Equity - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1998 $1,286,191 $ 48,327 $(239,876) $(11,749) $(63,048) $1,019,845 - -------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 140,538 140,538 Other comprehensive income, foreign currency adjustment (366) (366) -------- Total comprehensive income 140,172 Cash dividends declared ($0.08 per share) (10,857) (10,857) Stock option exercises (2,789 shares) 25,437 25,437 Issuance of restricted stock (370 shares), net of forfeiture adjustments 4,873 (4,844) 29 Earned compensation 2,341 2,341 ESOP note receivable repayments 1,800 1,800 Income tax benefit credited to equity 9,722 9,722 Proceeds from issuance of equity put options 2,184 2,184 Purchases of common stock for treasury (12,162 shares) (227,510) (227,510) Issuance of treasury stock under Employee Stock Purchase Plan (55 shares) 389 484 873 - -------------------------------------------------------------------------------------------------------------------- Balance at May 30, 1999 1,328,796 178,008 (466,902) (12,115) (63,751) 964,036 - -------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 176,705 176,705 Other comprehensive income, foreign currency adjustment (342) (342) --------- Total comprehensive income 176,363 Cash dividends declared ($0.08 per share) (10,134) (10,134) Stock option exercises (1,153 shares) 10,212 10,212 Issuance of restricted stock (163 shares), net of forfeiture adjustments 3,638 (3,685) (47) Earned compensation 3,314 3,314 ESOP note receivable repayments 7,600 7,600 Income tax benefit credited to equity 5,506 5,506 Proceeds from issuance of equity put options 1,814 1,814 Purchases of common stock for treasury (11,487 shares) (202,105) (202,105) Issuance of treasury stock under Employee Stock Purchase Plan (243 shares) 1,741 2,170 3,911 - -------------------------------------------------------------------------------------------------------------------- Balance at May 28, 2000 1,351,707 344,579 (666,837) (12,457) (56,522) 960,470 - -------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 197,000 197,000 Other comprehensive income, foreign currency adjustment (645) (645) ----------- Total comprehensive income 196,355 Cash dividends declared ($0.08 per share) (9,458) (9,458) Stock option exercises (3,113 shares) 33,158 33,158 Issuance of restricted stock (295 shares), net of forfeiture adjustments 3,986 1,035 (5,109) (88) Earned compensation 4,164 4,164 ESOP note receivable repayments 8,145 8,145 Income tax benefit credited to equity 15,287 15,287 Purchases of common stock for treasury (8,440 shares) (176,511) (176,511) Issuance of treasury stock under Employee Stock Purchase and other plans (224 shares) 1,661 2,059 3,720 - -------------------------------------------------------------------------------------------------------------------- Balance at May 27, 2001 $1,405,799 $532,121 $(840,254) $(13,102) $(49,322) $1,035,242 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 26 CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands) May 27, 2001 May 28, 2000 May 30, 1999 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Operating Activities Net Earnings $ 197,000 $ 176,705 $ 140,538 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization 146,864 130,464 125,327 Amortization of unearned compensation and loan costs 7,031 5,895 4,879 Change in current assets and liabilities 41,740 2,472 70,924 Change in other liabilities (642) (371) 2,682 (Gain) loss on disposal of land, buildings and equipment 1,559 2,683 (1,798) Deferred income taxes 11,750 24,609 13,967 Income tax benefit credited to equity 15,287 5,506 9,722 Non-cash restructuring and asset impairment credit, net (5,931) (8,461) Other, net (19) 594 162 - -------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities $ 420,570 $ 342,626 $ 357,942 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Investing Activities Purchases of land, buildings and equipment (355,139) (268,946) (123,673) Purchases of intangibles (11,215) (2,431) (2,203) (Increase) decrease in other assets 485 611 (8,794) Proceeds from disposal of land, buildings and equipment (including net assets held for disposal) 13,492 20,998 38,134 - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities $ (352,377) $(249,768) $ (96,536) - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Financing Activities Proceeds from issuance of common stock 36,701 13,944 26,310 Dividends paid (9,458) (10,134) (10,857) Purchases of treasury stock (176,511) (202,105) (227,510) ESOP note receivable repayments 8,145 7,600 1,800 Increase (decrease) in short-term debt (103,000) 91,500 (51,600) Proceeds from issuance of long-term debt 224,454 9,848 Repayment of long-term debt (10,658) (9,986) (4,126) Payment of loan costs (2,154) (349) Proceeds from issuance of equity put options 1,814 2,184 - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities $ (32,481) $(107,716) $ (253,951) - -------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 35,712 (14,858) 7,455 Cash and Cash Equivalents - Beginning of Year 26,102 40,960 33,505 - -------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents - End of Year $ 61,814 $ 26,102 $ 40,960 ==================================================================================================================== Cash Flow from Changes in Current Assets and Liabilities Receivables (4,908) (7,706) 7,056 Inventories (6,242) (1,485) 41,697 Prepaid expenses and other current assets (289) (4,184) (1,310) Accounts payable 16,372 (4,238) 11,787 Accrued payroll 4,783 3,540 1,025 Accrued income taxes 14,442 16,712 15,477 Other accrued taxes 1,905 (441) 1,793 Other current liabilities 15,677 274 (6,601) - -------------------------------------------------------------------------------------------------------------------- Change in Current Assets and Liabilities $ 41,740 $ 2,472 $ 70,924 ====================================================================================================================
See accompanying notes to consolidated financial statements. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying 2001, 2000 and 1999 consolidated financial statements include the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden or the Company). All significant intercompany balances and transactions have been eliminated in consolidation. Fiscal Year Darden's fiscal year ends on the last Sunday in May. Fiscal years 2001, 2000 and 1999 each consisted of 52 weeks. Inventories Inventories are valued at the lower of weighted average cost or market. Land, Buildings and Equipment All land, buildings and equipment are recorded at cost. Building components are depreciated over estimated useful lives ranging from seven to 40 years using the straight-line method. Equipment is depreciated over estimated useful lives ranging from three to ten years also using the straight-line method. Accelerated depreciation methods are generally used for income tax purposes. Intangible Assets The cost of intangible assets at May 27, 2001, and May 28, 2000, amounted to $26,818 and $16,412, respectively. Intangibles are amortized using the straight-line method over their estimated useful lives ranging from three to 40 years. Costs capitalized principally represent software and related development costs and the purchase costs of leases with favorable rent terms. Accumulated amortization on intangible assets as of May 27, 2001, and May 28, 2000, amounted to $6,199 and $5,201, respectively. Impairment of Long-Lived Assets Restaurant sites and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Restaurant sites and certain identifiable intangibles to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell. Liquor Licenses The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed in the year incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized. If there is permanent impairment in the value of a liquor license due to market changes, the asset is written down to its net realizable value. Annual liquor license renewal fees are expensed. Foreign Currency Translation The Canadian dollar is the functional currency for Darden's Canadian restaurant operations. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the period. Translation gains and losses are reported as a separate component of accumulated other comprehensive income in stockholders' equity. Gains and losses from foreign currency transactions are included in the consolidated statements of earnings for each period. Pre-Opening Costs Non-capital expenditures associated with opening new restaurants are expensed as incurred. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 28 Advertising Production costs of commercials and programming are charged to operations in the year the advertising is first aired. The costs of other advertising, promotion, and marketing programs are charged to operations in the year incurred. Advertising expense was $196,314, $182,220, and $180,563, in 2001, 2000, and 1999, respectively. Income Taxes The Company provides for federal and state income taxes currently payable as well as for those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal income tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Statements of Cash Flows For purposes of the consolidated statements of cash flows, amounts receivable from credit card companies and investments purchased with a maturity of three months or less are considered cash equivalents. Net Earnings Per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares. Options to purchase 2,412,600, 3,586,200, and 120,200 shares of common stock were excluded from the calculation of diluted earnings per share for the years ended May 27, 2001, May 28, 2000, and May 30, 1999, respectively, because their exercise prices exceeded the average market price of common shares for the period. Derivative Financial and Commodity Instruments The Company may, from time to time, use financial and commodities derivatives in the management of interest rate and commodities pricing risks that are inherent in its business operations. The Company may also use financial derivatives as part of its stock repurchase program as described in Note 10. Such instruments are not held or issued for trading or speculative purposes. The Company may, from time to time, use interest rate swap and cap agreements in the management of interest rate exposure. The interest rate differential to be paid or received is normally accrued as interest rates change, and is recognized as a component of interest expense over the life of the agreements. If an agreement is terminated prior to the maturity date and is characterized as a hedge, any accrued rate differential would be deferred and recognized as interest expense over the life of the hedged item. The Company uses commodities hedging instruments, including forwards, futures and options, to reduce the risk of price fluctuations related to future raw materials requirements for commodities such as coffee, soybean oil, and natural gas. The terms of such instruments generally do not exceed 12 months, and depend on the commodity and other market factors. Deferred gains and losses are subsequently recorded as cost of products sold in the consolidated statements of earnings when the inventory is sold. If the inventory is not acquired and the hedge is disposed of, the deferred gain or loss is recognized immediately in cost of products sold. The Company believes that it does not have material risk from any of the above financial instruments, and the Company does not anticipate any material losses from the use of such instruments. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 29 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock-Based Compensation Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," encourages the use of a fair-value method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting period. As allowed by SFAS 123, the Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Under APB 25, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price. The Company has adopted the disclosure requirements of SFAS 123. Comprehensive Income Comprehensive income includes net earnings and other comprehensive income items that are excluded from net earnings under generally accepted accounting principles, such as foreign currency translation adjustments and unrealized gains and losses on investments. The Company's only item of other comprehensive income is foreign currency translation adjustments which have been reported separately within stockholders' equity. Segment Reporting As of May 27, 2001, the Company operated 1,168 Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones BBQ Sports Bar restaurants in North America as part of a single operating segment. The restaurants operate principally in the United States within the casual dining industry, providing similar products to similar customers. The restaurants also possess similar pricing structures resulting in similar long-term expected financial performance characteristics. Revenues from external customers are derived principally from food and beverage sales. The Company does not rely on any major customers as a source of revenue. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment. Reclassifications Certain reclassifications have been made to prior year amounts to conform with current year presentation. Future Application of Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Gains or losses resulting from changes in the fair values of those derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. In June 1999, the FASB issued SFAS 137, which deferred the effective date of adoption of SFAS 133 for one year. In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivative instruments and hedging activities, must be adopted concurrently with SFAS 133. The Company adopted SFAS 133 and SFAS 138 in the first quarter of fiscal 2002. Adoption of SFAS 133 and SFAS 138 did not materially impact the Company's consolidated financial position, results of operations, or cash flows. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 30 NOTE 2 - ACCOUNTS RECEIVABLE Darden contracts with national storage and distribution companies to provide services that are billed to Darden on a per-case basis. In connection with these services, certain Darden inventory items are sold to these companies at a predetermined price when they are shipped to their storage facilities. These items are repurchased at the same price by Darden when the inventory is subsequently delivered to Company restaurants. These transactions do not impact the consolidated statements of earnings. Receivables from national storage and distribution companies amounted to $24,996 and $24,692 at May 27, 2001, and May 28, 2000, respectively. NOTE 3 - RESTRUCTURING AND ASSET IMPAIRMENT CREDIT, NET Darden recorded asset impairment charges of $2,629 and $158,987 in 2000 and 1997, respectively, representing the difference between fair value and carrying value of impaired assets. The asset impairment charges relate to low-performing restaurant properties and other long-lived assets, including restaurants that have been closed. Fair value is generally determined based on appraisals or sales prices of comparable properties. In connection with the closing of certain restaurant properties, the Company recorded other restructuring expenses of $70,900 in 1997. The liability was established to accrue for estimated carrying costs of buildings and equipment prior to disposal, employee severance costs, lease buy-out provisions, and other costs associated with the restructuring action. All restaurant closings under this restructuring action have been completed. The remaining restructuring actions, including disposal of the closed owned properties and the lease buy-outs related to the closed leased properties, are expected to be substantially completed during 2002. During 2000 and 1999, the Company reversed portions of its 1997 restructuring liability totaling $8,560 and $8,461, respectively. The 2000 reversal primarily resulted from favorable lease terminations. The 1999 reversal primarily resulted from the Company's decision to close fewer restaurants than identified for closure as part of the initial restructuring action. No restructuring or asset impairment expense or credit was charged to operating results during 2001. The components of the restructuring and asset impairment credit, net, and the after-tax and earnings per share effects of these items for 2000 and 1999 are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Carrying costs of buildings and equipment prior to disposal and employee severance costs $ $ (3,907) Lease buy-out provisions (8,560) (4,554) - -------------------------------------------------------------------------------------------------------------------- Subtotal (8,560) (8,461) Impairment of restaurant properties 2,629 - -------------------------------------------------------------------------------------------------------------------- Total restructuring and asset impairment credit, net (5,931) (8,461) Less related income tax effect 2,308 3,236 - -------------------------------------------------------------------------------------------------------------------- Restructuring and asset impairment credit, net, net of income taxes (3,623) (5,225) - -------------------------------------------------------------------------------------------------------------------- Earnings per share effect - basic and diluted $ (0.03) $ (0.04) ====================================================================================================================
The restructuring liability is included in other current liabilities in the accompanying consolidated balance sheets. As of May 27, 2001, approximately $42,600 of carrying, employee severance, and lease buy-out costs associated with the 1997 restructuring action had been paid and charged against the restructuring liability. A summary of restructuring liability activity for 2001 and 2000 is as follows:
Fiscal Year - ------------------------------------------------------------------------ --------------------- --------------------- 2001 2000 - ------------------------------------------------------------------------ --------------------- --------------------- Beginning balance $ 8,564 $ 37,139 Non-cash Adjustments: Restructuring credit (8,560) Reclassification of asset impairment (described below) (12,000) Cash Payments: Carrying costs and employee severance payments (1,364) (2,744) Lease payments including lease buy-outs, net (1,402) (5,271) - ------------------------------------------------------------------------ --------------------- --------------------- Ending Balance $ 5,798 $ 8,564 ======================================================================== ===================== =====================
DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 31 Asset impairment charges of $12,000 included in the beginning 2000 restructuring liability have been reclassified to reduce the carrying value of land for all periods presented. This reclassification related to asset impairment charges recorded in 1997 for long-lived assets associated with Canadian restaurants. NOTE 4 - INCOME TAXES The components of earnings before income taxes and the provision for income taxes thereon are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Earnings before income taxes: U.S. $ 296,160 $ 269,802 $ 212,585 Canada 5,058 4,105 3,290 - -------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 301,218 $ 273,907 $ 215,875 - -------------------------------------------------------------------------------------------------------------------- Income taxes: Current: Federal $ 79,285 $ 61,528 $ 53,621 State and local 13,049 10,861 7,577 Canada 134 204 172 - -------------------------------------------------------------------------------------------------------------------- Total current 92,468 72,593 61,370 - -------------------------------------------------------------------------------------------------------------------- Deferred (principally U.S.) 11,750 24,609 13,967 - -------------------------------------------------------------------------------------------------------------------- Total income taxes $ 104,218 $ 97,202 $ 75,337 ====================================================================================================================
During 2001, 2000, and 1999, Darden paid income taxes of $63,893, $53,688, and $34,790, respectively. The following table is a reconciliation of the U.S. statutory income tax rate to the effective income tax rate included in the accompanying consolidated statements of earnings:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefits 3.1 3.3 3.3 Benefit of federal income tax credits (4.1) (3.9) (4.5) Other, net 0.6 1.1 1.1 - -------------------------------------------------------------------------------------------------------------------- Effective income tax rate 34.6% 35.5% 34.9% ====================================================================================================================
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Accrued liabilities $ 14,899 $ 15,836 Compensation and employee benefits 50,902 48,310 Asset disposition and restructuring liabilities 5,306 7,616 Net assets held for disposal 937 1,837 Other 2,436 2,210 - -------------------------------------------------------------------------------------------------------------------- Gross deferred tax assets 74,480 75,809 - -------------------------------------------------------------------------------------------------------------------- Buildings and equipment (73,578) (64,071) Prepaid pension asset (17,376) (16,406) Prepaid interest (3,812) (4,161) Deferred rent and interest income (13,474) (14,560) Intangibles (5,840) (4,497) Other (3,182) (3,146) - -------------------------------------------------------------------------------------------------------------------- Gross deferred tax liabilities (117,262) (106,841) - -------------------------------------------------------------------------------------------------------------------- Net deferred tax liabilities $ (42,782) $ (31,032) ====================================================================================================================
A valuation allowance for deferred tax assets is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of May 27, 2001, and May 28, 2000, no valuation allowance has been recognized in the accompanying consolidated financial statements for the deferred tax assets because the Company believes that sufficient projected future taxable income will be generated to fully utilize the benefits of these deductible amounts. NOTE 5 - LAND, BUILDINGS AND EQUIPMENT The components of land, buildings and equipment are as follows:
May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Land $ 426,171 $ 409,069 Buildings 1,562,107 1,425,557 Equipment 759,812 680,178 Construction in progress 128,976 75,027 - -------------------------------------------------------------------------------------------------------------------- Total land, buildings and equipment 2,877,066 2,589,831 Less accumulated depreciation (1,097,551) (1,011,290) - -------------------------------------------------------------------------------------------------------------------- Net land, buildings and equipment $ 1,779,515 $ 1,578,541 ====================================================================================================================
DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 32 NOTE 6 - OTHER ASSETS The components of other assets are as follows:
May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Prepaid pension $ 45,624 $ 42,893 Prepaid interest and loan costs 19,768 20,312 Liquor licenses 18,642 17,599 Intangible assets 20,619 11,211 Prepaid equipment maintenance 1,641 4,103 Miscellaneous 4,507 6,304 - -------------------------------------------------------------------------------------------------------------------- Total other assets $ 110,801 $ 102,422 ====================================================================================================================
NOTE 7 - SHORT-TERM DEBT Short-term debt at May 27, 2001, and May 28, 2000, consisted of $12,000 and $115,000, respectively, of unsecured commercial paper borrowings with original maturities of one month or less. The debt bore interest rates of 4.3 percent at May 27, 2001, and 6.36 to 6.75 percent at May 28, 2000. NOTE 8 - LONG-TERM DEBT The components of long-term debt are as follows:
May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- 8.375% senior notes due September 2005 $ 150,000 $ 6.375% notes due February 2006 150,000 150,000 7.45% medium-term notes due April 2011 75,000 7.125% debentures due February 2016 100,000 100,000 ESOP loan with variable rate of interest (4.45% at May 27, 2001) due December 2018 44,455 52,600 Other 2,647 5,160 - -------------------------------------------------------------------------------------------------------------------- Total long-term debt 522,102 307,760 Less issuance discount (1,528) (1,174) - -------------------------------------------------------------------------------------------------------------------- Total long-term debt less issuance discount 520,574 306,586 Less current portion (2,647) (2,513) - -------------------------------------------------------------------------------------------------------------------- Long-term debt, excluding current portion $ 517,927 $ 304,073 ====================================================================================================================
In July 2000, the Company registered $500,000 of debt securities with the Securities and Exchange Commission (SEC) using a shelf registration process. Under this process, the Company may offer, from time to time, up to $500,000 of debt securities. In September 2000, the Company issued $150,000 of unsecured 8.375 percent senior notes due in September 2005. The senior notes rank equally with all of the Company's other unsecured and unsubordinated debt and are senior in right of payment to all of the Company's future subordinated debt. In November 2000, Darden filed a prospectus supplement with the SEC to offer up to $350,000 of medium-term notes from time to time as part of the shelf registration process referred to above. In April 2001, under this program, the Company issued $75,000 of unsecured 7.45 percent medium-term notes due in April 2011. In January 1996, the Company issued $150,000 of unsecured 6.375 percent notes due in February 2006 and $100,000 of unsecured 7.125 percent debentures due in February 2016. The proceeds from the issuance were used to refinance commercial paper borrowings. Concurrent with the issuance of the notes and debentures, the Company terminated, and settled for cash, interest-rate swap agreements with notional amounts totaling $200,000, which hedged the movement of interest rates prior to the issuance of the notes and debentures. The cash paid in terminating the interest-rate swap agreements is being amortized to interest expense over the life of the notes and debentures. The effective annual interest rate is 7.57 percent for the notes and 7.82 percent for the debentures, after consideration of loan costs, issuance discounts, and interest-rate swap termination costs. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 33 The Company also maintains a credit facility which expires in October 2004, with a consortium of banks under which the Company can borrow up to $300,000. The credit facility allows the Company to borrow at interest rates that vary based on the prime rate, LIBOR,or a competitively bid rate among the members of the lender consortium, at the option of the Company. The credit facility is available to support the Company's commercial paper borrowing program, if necessary. The Company is required to pay a facility fee of 15 basis points per annum on the average daily amount of loan commitments by the consortium. The amount of interest and the annual facility fee are subject to change based on the Company's achievement of certain debt ratings and financial ratios, such as maximum debt to capital ratios. Advances under the credit facility are unsecured. At May 27, 2001, and May 28, 2000, no borrowings were outstanding under this credit facility. The aggregate maturities of long-term debt for each of the five years subsequent to May 27, 2001, and thereafter are $2,647 in 2002, $0 in 2003 through 2005, $300,000 in 2006, and $219,455 thereafter. NOTE 9 - FINANCIAL INSTRUMENTS The Company has participated in the financial derivatives markets to manage its exposure to interest rate fluctuations. The Company had interest rate swaps with a notional amount of $200,000, which it used to convert variable rates on its long-term debt to fixed rates effective May 30, 1995. The Company received the one-month commercial paper interest rate and paid fixed-rate interest ranging from 7.51 percent to 7.89 percent. The interest rate swaps were settled during January 1996 at a cost to the Company of $27,670. This cost is being recognized as an adjustment to interest expense over the term of the Company's 10-year, 6.375 percent notes and 20-year, 7.125 percent debentures (see Note 8). The following methods were used in estimating fair value disclosures for significant financial instruments: Cash equivalents and short-term debt approximate their carrying amount due to the short duration of those items. Long-term debt is based on quoted market prices or, if market prices are not available, the present value of the underlying cash flows discounted at the Company's incremental borrowing rates. The carrying amounts and fair values of the Company's significant financial instruments are as follows:
May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 61,814 $ 61,814 $ 26,102 $ 26,102 Short-term debt 12,000 12,000 115,000 115,000 Total long-term debt 520,574 513,392 306,586 284,835 - --------------------------------------------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY The Company's Board of Directors has approved a stock repurchase program that authorizes the Company to repurchase up to 64.6 million shares of the Company's common stock. In 2001, 2000, and 1999, the Company purchased treasury stock totaling $176,511, $202,105, and $227,510, respectively. As of May 27, 2001, 52.5 million shares have been purchased under the program. As a part of its stock repurchase program, the Company issues equity put options from time to time that entitle the holder to sell shares of Company common stock to the Company, at a specified price, if the holder exercises the option. In 2000, the Company issued put options for 1,750,000 shares for $1,814 in premiums. At May 28, 2000, put options for 250,000 shares were outstanding. No put options were issued in 2001 or outstanding at May 27, 2001. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 34 NOTE 11 - STOCKHOLDERS' RIGHTS PLAN The Company has a stockholders' rights plan that entitles each holder of the Company's common stock to purchase one-hundredth of one share of Darden preferred stock for each common share owned at a purchase price of $62.50 per share, subject to adjustment to prevent dilution. The rights are exercisable when, and are not transferable apart from the Company's common stock until, a person or group has acquired 20 percent or more, or makes a tender offer for 20 percent or more, of the Company's common stock. If the specified percentage of the Company's common stock is then acquired, each right will entitle the holder (other than the acquiring company) to receive, upon exercise, common stock of either the Company or the acquiring company having a value equal to two times the exercise price of the right. The rights are redeemable by the Company's Board in certain circumstances and expire on May 24, 2005. NOTE 12 - INTEREST, NET The components of interest, net are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Interest expense $35,196 $24,999 $21,015 Capitalized interest (3,671) (1,910) (593) Interest income (861) (701) (882) - -------------------------------------------------------------------------------------------------------------------- Interest, net $30,664 $22,388 $19,540 ====================================================================================================================
Capitalized interest was computed using the Company's borrowing rate. The Company paid $24,281, $19,834, and $16,356 for interest (net of amounts capitalized) in 2001, 2000, and 1999, respectively. NOTE 13 - LEASES An analysis of rent expense incurred under operating leases is as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Restaurant minimum rent $40,007 $38,818 $38,866 Restaurant percentage rent 3,163 2,183 1,853 Restaurant equipment minimum rent 8,388 8,267 8,511 Restaurant rent averaging expense (510) (473) 13 Transportation equipment 2,320 1,946 1,856 Office equipment 1,323 1,090 1,012 Office space 1,020 597 505 Warehouse space 227 227 215 - -------------------------------------------------------------------------------------------------------------------- Total rent expense $55,938 $52,655 $52,831 ====================================================================================================================
Minimum rental obligations are accounted for on a straight-line basis over the term of the lease. Percentage rent expense is generally based on sales levels or changes in the Consumer Price Index. Most leases require payment of property taxes, insurance, and maintenance costs in addition to the rent payments. The annual non-cancelable future lease commitments for each of the five years subsequent to May 27, 2001, and thereafter are: $51,787 in 2002, $45,890 in 2003, $34,233 in 2004, $28,746 in 2005, $23,074 in 2006, and $69,817 thereafter, for a cumulative total of $253,547. NOTE 14 - RETIREMENT PLANS Substantially all of the Company's employees are eligible to participate in a retirement plan. The Company's salaried employees are eligible to participate in a post-retirement benefit plan. Defined Benefit Plans and Post-retirement Benefit Plan The Company sponsors defined benefit pension plans for salaried employees with various benefit formulas and a group of hourly employees with a frozen level of benefits. The Company also sponsors a contributory plan that provides health-care benefits to its salaried retirees. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 35 The following provides a reconciliation of the changes in the plan benefit obligation, fair value of plan assets, and the funded status of the plans as of February 28, 2001, and February 29, 2000:
Defined Benefit Plans (1) Post-retirement Benefit Plan - ------------------------------------------------------------------------------------------------------------------ 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------ Change in Benefit Obligation: Benefit obligation at the beginning of period $ 82,634 $ 83,205 $ 5,663 $ 5,718 Service cost 3,488 3,091 246 260 Interest cost 6,450 5,683 448 396 Participant contributions 96 89 Benefits paid (3,765) (4,204) (159) (206) Actuarial (gain) loss 8,532 (5,141) 445 (594) -------- ---------- --------- --------- Benefit obligation at the end of period $ 97,339 $ 82,634 $ 6,739 $ 5,663 ======== ========= ========= ========= Change in Plan Assets: Fair value of plan assets at the beginning of period $115,872 $ 102,550 $ $ Actual return on plan assets 7,894 17,495 Employer contributions 41 31 63 117 Participant contributions 96 89 Benefits paid (3,765) (4,204) (159) (206) -------- --------- --------- --------- Fair value of plan assets at the end of period $120,042 $115,872 $ $ ======== ======== ========= ========= Reconciliation of Funded Status of the Plan: Funded status at end of year $ 22,703 $ 33,238 $ (6,739) $ (5,663) Unrecognized transition asset (642) (1,284) Unrecognized prior service cost (1,849) (2,305) 65 83 Unrecognized actuarial (gain) loss 22,857 10,843 (371) (835) Contributions for March to May 10 10 28 38 --------- --------- --------- --------- Prepaid (accrued) benefit costs $ 43,079 $ 40,502 $ (7,017) $ (6,377) ========= ========= ========= ========= Components of the Consolidated Balance Sheets: Prepaid benefit costs $ 45,624 $ 42,893 $ $ Accrued benefit costs (2,545) (2,391) (7,017) (6,377) -------- --------- --------- --------- Net asset (liability) recognized $ 43,079 $ 40,502 $ (7,017) $ (6,377) ======== ========= ========= =========
(1) For plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and plan assets were $2,781 and zero, respectively, as of February 28, 2001, and $2,460 and zero, respectively, as of February 29, 2000. The following presents the weighted-average assumptions used to determine the actuarial present value of the defined benefit plans and the post-retirement benefit plan obligations:
Defined Benefit Plans Post-retirement Benefit Plan - ------------------------------------------------------------------------------------------------------------------ 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------- Discount rate 7.5% 8.0% 7.5% 8.0% Expected long-term rate of return on plan assets 10.4% 10.4% N/A N/A Rate of future compensation increases 4.0% 4.5% N/A N/A
The assumed health care cost trend rate increase in the per-capita charges for benefits ranged from 6.0 percent to 4.7 percent for 2002, depending on the medical service category. The rates gradually decrease to a range of 5.5 percent to 4.6 percent through 2006 and 2004, respectively, and remain at that level thereafter. The assumed health care cost trend rate has a significant effect on amounts reported for retiree health care plans. A one-percentage-point variance in the assumed health care cost trend rate would increase or decrease the total of the service and interest cost components of net periodic post-retirement benefit cost by $146 and $111, respectively, and would increase or decrease the accumulated post-retirement benefit obligation by $1,298 and $1,036, respectively. DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 36 Components of net periodic benefit cost (income) are as follows:
Defined Benefit Plans Post-retirement Benefit Plan ----------------------- ---------------------------- 2001 2000 1999 2001 2000 1999 - ------------------------------------------------- ------------ ----------- ---------- -- -------- -------- ----------- Service cost $ 3,488 $ 3,091 $ 3,251 $ 246 $ 260 $ 267 Interest cost 6,255 5,509 5,243 447 396 408 Expected return on plan assets (11,589) (10,652) (10,247) Amortization of unrecognized transition asset (642) (642) (642) Amortization of unrecognized prior service cost (456) (456) (456) 18 18 18 Recognized net actuarial loss (gain) 213 1,405 1,088 (18) ------- ------- -------- ----- ----- ----- Net periodic benefit cost (income) $(2,731) $(1,745) $ (1,763) $ 693 $ 674 $ 693 ======= ======= ======== ===== ===== =====
Defined Contribution Plan The Company has a defined contribution plan covering most employees age 21 and older. The Company matches participant contributions with at least one year of service up to six percent of compensation on the basis of Company performance with the match ranging from a minimum of $0.25 up to $1.00 for each dollar contributed by the participant. The plan had net assets of $363,610 at May 27, 2001, and $264,127 at May 28, 2000. Expense recognized in 2001, 2000, and 1999 was $3,358, $3,729, and $5,054, respectively. Employees classified as "highly compensated" under the Internal Revenue Code are ineligible to participate in this plan. Amounts due to highly compensated employees under a separate, nonqualified deferred compensation plan totaled $53,763 and $44,150 as of May 27, 2001 and May 28, 2000, respectively. The defined contribution plan includes an Employee Stock Ownership Plan (ESOP). This ESOP originally borrowed $50,000 from third parties guaranteed by the Company and borrowed $25,000 from the Company at a variable interest rate. The $50,000 third party loan was refinanced in 1997 by a commercial bank's loan to the Company and a corresponding loan from the Company to the ESOP. Compensation expense is recognized as contributions are accrued. Contributions to the plan, plus the dividends accumulated on the common stock held by the ESOP, are used to pay principal, interest, and expenses of the plan. As loan payments are made, common stock is allocated to ESOP participants. In 2001, 2000, and 1999, the ESOP incurred interest expense of $3,086, $3,436, and $3,203, respectively, and used dividends received of $415, $941, and $647, respectively, and contributions received from the Company of $9,224, $9,385, and $4,368, respectively, to pay principal and interest on its debt. Company shares owned by the ESOP are included in average common shares outstanding for purposes of calculating net earnings per share. At May 27, 2001, the ESOP's debt to the Company had a balance of $44,455 with a variable rate of interest of 4.45 percent; $27,555 of the principal balance is due to be repaid no later than December 2007, with the remaining $16,900 due to be repaid no later than December 2014. The number of Company common shares within the ESOP at May 27, 2001, approximates 9,810,000, representing 6,740,000 unreleased shares and 3,070,000 shares allocated to participants. NOTE 15 - STOCK PLANS The Company maintains three principal stock option and stock grant plans: the Amended and Restated Stock Option and Long-Term Incentive Plan of 1995 (1995 Plan); the Restaurant Management and Employee Stock Plan of 2000 (2000 Plan); and the Stock Plan for Directors, adopted in 2000 (Director Plan). All of the plans are administered by the Compensation Committee of the Board of Directors. The 1995 Plan provides for the issuance of up to 22,200,000 common shares in connection with the granting of non-qualified stock options, and restricted stock or restricted stock units (RSUs), to key employees. Restricted stock and RSUs may be granted under the plan for up to 1,500,000 shares. The 2000 Plan provides for the issuance of up to 3,600,000 common shares out of the Company's DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 37 treasury in connection with the granting of non-qualified stock options and restricted stock or RSUs to key employees, excluding directors and Section 16 reporting officers. Restricted stock and RSUs may be granted under the plan for up to five percent of the shares authorized under the plan. The Director Plan provides for the issuance of up to 250,000 common shares out of the Company's treasury in connection with the granting of non-qualified stock options and restricted stock and RSUs to non-employee directors. Under all of the plans, stock options are granted at a price equal to the fair market value of the shares at the date of grant, for terms not exceeding ten years, and have various vesting periods at the discretion of the Compensation Committee. Restricted stock and RSUs granted under the 1995 and 2000 Plans generally vest no sooner than one year from the date of grant, although the restricted period may be accelerated based on performance goals established by the Committee. The Company also maintains the Compensation Plan for Non-Employee Directors that was adopted in 2000. This plan provides that non-employee directors may elect to receive their annual retainer and meeting fees in any combination of cash, deferred cash or Company common shares, and authorizes the issuance of up to 50,000 common shares out of the Company's treasury for this purpose. The common shares issuable under the plan shall have a fair market value equivalent to the value of the foregone retainer and meeting fees. The per share weighted average fair value of stock options granted during 2001, 2000, and 1999 was $17.54, $6.47, and $10.21, respectively. These amounts were determined using the Black Scholes option-pricing model which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option price for each grant. The expected volatility was determined considering stock prices for the fiscal year the grant occurred and prior fiscal years, as well as considering industry volatility data. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term equal to the remaining term for each grant. The expected life of the option was estimated based on the exercise history from previous grants. The weighted-average assumptions used in the Black Scholes model were as follows:
Stock Options Granted in Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Risk-free interest rate 7.00% 6.50% 5.60% Expected volatility of stock 30.0% 30.0% 30.0% Dividend yield 0.1% 0.1% 0.1% Expected option life 6.0 years 6.0 years 6.0 years ====================================================================================================================
The Company applies APB 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized in the Company's consolidated financial statements for stock options granted under any of its stock plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options as prescribed under SFAS 123, the Company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated below:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Net earnings As reported $ 197,000 $ 176,705 $ 140,538 Pro forma $ 184,542 $ 168,171 $ 134,527 Basic net earnings per share As reported $ 1.64 $ 1.38 $ 1.02 Pro forma $ 1.54 $ 1.31 $ 0.98 Diluted net earnings per share As reported $ 1.59 $ 1.34 $ 0.99 Pro forma $ 1.49 $ 1.27 $ 0.95 ====================================================================================================================
DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 38 Under SFAS 123, stock options granted prior to 1996 are not required to be included as compensation in determining pro forma net earnings. To determine pro forma net earnings, reported net earnings have been adjusted for compensation costs associated with stock options granted from 1996 forward that are expected to eventually vest. Stock option activity during the periods indicated was as follows:
Weighted Average Weighted Average Options Exercise Price Options Exercise Price Exercisable Per Share Outstanding Per Share - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1998 6,286,678 $ 9.55 16,362,900 $ 10.16 - -------------------------------------------------------------------------------------------------------------------- Options granted 2,888,554 $ 15.37 Options exercised (2,789,237) $ 9.12 Options cancelled (962,666) $ 9.36 - -------------------------------------------------------------------------------------------------------------------- Balance at May 30, 1999 5,883,774 $ 10.53 15,499,551 $ 11.35 - -------------------------------------------------------------------------------------------------------------------- Options granted 3,727,496 $ 20.91 Options exercised (1,152,922) $ 9.18 Options cancelled (505,618) $ 13.07 - -------------------------------------------------------------------------------------------------------------------- Balance at May 28, 2000 6,712,259 $ 10.68 17,568,507 $ 13.47 - -------------------------------------------------------------------------------------------------------------------- Options granted 3,583,818 $ 16.48 Options exercised (3,113,400) $ 10.50 Options cancelled (617,400) $ 16.23 - -------------------------------------------------------------------------------------------------------------------- Balance at May 27, 2001 8,148,226 $ 11.43 17,421,525 $ 14.52 - --------------------------------------------------------------------------------------------------------------------
The following table provides information regarding exercisable and outstanding options as of May 27, 2001:
Weighted Weighted Weighted Average Range of Average Average Remaining Exercise Options Exercise Options Exercise Contractual Price Per Share Exercisable Price Per Share Outstanding Price Per Share Life (Years) - -------------------------------------------------------------------------------------------------------------------- $ 5.00 - $10.00 2,256,397 $ 9.40 3,064,520 $ 9.29 4.76 $10.01 - $15.00 4,970,681 $ 11.29 5,083,099 $ 11.31 3.63 $15.01 - $20.00 847,806 $ 16.75 6,712,503 $ 16.48 8.32 Over $20.00 73,342 $ 21.34 2,561,403 $ 22.03 8.13 - -------------------------------------------------------------------------------------------------------------------- 8,148,226 $ 11.43 17,421,525 $ 14.52 6.30 ====================================================================================================================
DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 39 NOTE 16 - EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 1999, the Company adopted the Darden Restaurants Employee Stock Purchase Plan to provide eligible employees who have completed one year of service an opportunity to purchase shares of its common stock, subject to certain limitations. Under the plan, employees may elect to purchase shares at the lower of 85 percent of the fair market value of the Company's common stock as of the first or last trading days of each quarterly participation period. During 2001, 2000, and 1999, employees purchased shares of common stock under the plan totaling 219,000, 243,000, and 55,000, respectively. An additional 883,000 shares are available for issuance as of May 27, 2001. The Company applies APB 25 in accounting for its Employee Stock Purchase Plan, so no compensation cost has been recognized for shares issued under the plan. The impact of recognizing compensation expense for purchases made under the plan in accordance with the fair value method specified in SFAS 123 is less than $200 and has no impact on reported basic or diluted earnings per share. NOTE 17 - COMMITMENTS AND CONTINGENCIES The Company makes trade commitments in the course of its normal operations. As of May 27, 2001, the Company was contingently liable for approximately $10,889 under outstanding letters of credit issued in connection with purchase commitments. As of May 27, 2001, the Company also has guaranteed approximately $6,922 of third-party sub-lease obligations. The Company is involved in litigation arising from the normal course of business. In the opinion of management, this litigation is not expected to materially impact the Company's consolidated financial position, results of operations, or cash flows. NOTE 18 - QUARTERLY DATA (UNAUDITED) Summarized quarterly data for 2001 and 2000 are as follows:
Fiscal 2001 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 27 Nov. 26 Feb. 25 May 27 Total - -------------------------------------------------------------------------------------------------------------------- Sales $1,018,205 $931,958 $988,635 $1,082,359 $4,021,157 Gross Profit 229,093 194,832 219,566 242,940 886,431 Earnings before Interest and Taxes 94,112 53,088 84,019 100,663 331,882 Earnings before Taxes 87,838 45,311 75,491 92,578 301,218 Net Earnings 56,921 29,541 49,527 61,011 197,000 Net Earnings per Share: Basic 0.47 0.25 0.41 0.52 1.64 Diluted 0.46 0.24 0.40 0.50 1.59 Dividends Paid per Share 0.04 0.04 0.08 Stock Price: High 18.875 26.250 27.000 29.490 N/A Low 15.438 16.625 19.000 20.660 N/A ==================================================================================================================== Fiscal 2000 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 29 Nov. 28 Feb. 27 May 28 Total - -------------------------------------------------------------------------------------------------------------------- Sales $ 929,391 $ 848,231 $917,505 $ 1,006,129 $ 3,701,256 Gross Profit 203,381 169,282 203,353 224,543 800,559 Earnings before Interest and Taxes 77,803 43,230 79,361 95,901 296,295 Earnings before Taxes 73,227 37,965 72,715 90,000 273,907 Net Earnings 47,313 24,454 46,892 58,046 176,705 Net Earnings per Share: Basic 0.36 0.19 0.37 0.47 1.38 Diluted 0.35 0.18 0.36 0.46 1.34 Dividends Paid per Share 0.04 0.04 0.08 Stock Price: High 23.063 20.625 19.000 19.438 N/A Low 17.625 15.625 13.500 12.438 N/A ====================================================================================================================
DARDEN RESTAURANTS, INC. 2001 Annual Report to Stockholders PAGE 40 Five Year Financial Summary (Dollar amounts in thousands, except per share data)
Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- Operating Results May 27, 2001 May 28, 2000 May 30, 1999 May 31, 1998 May 25, 1997 - -------------------------------------------------------------------------------------------------------------------- Sales $ 4,021,157 $3,701,256 $3,458,107 $ 3,287,017 $ 3,171,810 - -------------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of Sales: Food and beverage 1,302,926 1,199,709 1,133,705 1,083,629 1,077,316 Restaurant labor 1,261,837 1,181,156 1,117,401 1,062,490 1,017,315 Restaurant expenses 569,963 519,832 493,811 482,311 481,348 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $ 3,134,726 $2,900,697 $2,744,917 $ 2,628,430 $ 2,575,979 - -------------------------------------------------------------------------------------------------------------------- Restaurant Operating Profit 886,431 800,559 713,190 658,587 595,831 - -------------------------------------------------------------------------------------------------------------------- Selling, general and administrative 407,685 379,731 360,909 358,542 361,263 Depreciation and amortization 146,864 130,464 125,327 126,289 136,876 Interest, net 30,664 22,388 19,540 20,084 22,291 Restructuring and asset impairment expense or (credit), net (5,931) (8,461) 229,887 - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $ 3,719,939 $3,427,349 $3,242,232 $ 3,133,345 $ 3,326,296 - -------------------------------------------------------------------------------------------------------------------- Earnings (loss) before Income Taxes 301,218 273,907 215,875 153,672 (154,486) Income Taxes 104,218 97,202 75,337 51,958 (63,457) - -------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) $ 197,000 $ 176,705 $ 140,538 $ 101,714 $ (91,029) - -------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) per Share: Basic $ 1.64 $ 1.38 $ 1.02 $ 0.69 $ (0.59) Diluted $ 1.59 $ 1.34 $ 0.99 $ 0.67 $ (0.59) - -------------------------------------------------------------------------------------------------------------------- Average Number of Common Shares Outstanding, Net of Shares Held in Treasury (in 000's): Basic 119,800 128,500 137,300 148,300 155,600 Diluted 123,800 131,900 141,400 151,400 155,600 ==================================================================================================================== Excluding Restructuring and Asset Impairment Expense or (Credit), Net Earnings $ 197,000 $ 173,082 $ 135,313 $ 101,714 $ 54,330 Earnings per Share: Basic $ 1.64 $ 1.35 $ 0.99 $ 0.69 $ 0.35 Diluted $ 1.59 $ 1.3 $ 0.96 $ 0.67 $ 0.35 ==================================================================================================================== Financial Position Total Assets $ 2,218,458 $1,971,423 $1,890,247 $ 1,984,742 $ 1,963,722 Land, Buildings and Equipment 1,779,515 1,578,541 1,461,535 1,490,348 1,533,272 Working Capital (Deficit) (226,116) (316,427) (194,478) (161,123) (143,211) Long-term Debt 520,574 306,586 316,451 310,608 313,192 Stockholders' Equity 1,035,242 960,470 964,036 1,019,845 1,081,213 Stockholders' Equity per Shar 8.82 7.86 7.30 7.23 7.07 ==================================================================================================================== Other Statistics Cash Flow from Operations $ 420,570 $ 342,626 $ 357,942 $ 239,933 $ 190,074 Capital Expenditures 355,139 268,946 123,673 112,168 159,688 Dividends Paid 9,458 10,134 10,857 11,681 12,385 Dividends Paid per Share 0.08 0.08 0.08 0.08 0.08 Advertising Expense $ 196,314 $ 182,220 $ 180,563 $ 186,261 $ 204,321 Number of Employees 128,900 122,300 116,700 114,800 114,600 Number of Restaurants 1,168 1,139 1,139 1,151 1,182 Stock Price: High $ 29.490 $ 23.063 $ 23.375 $ 18.125 $ 12.125 Low 15.438 12.438 14.188 8.125 6.750 Close 28.900 18.875 21.313 15.438 8.250 ====================================================================================================================
EX-21 6 exh21.txt 10-K FY01 EXHIBIT 21 SUBSIDIARIES OF DARDEN RESTAURANTS, INC. As of May 27, 2001, the Registrant had one "significant subsidiary", as defined in Regulation S-X, Rule 1-02(w), identified as follows: GMRI, Inc., a Florida corporation, doing business as Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones. In addition to GMRI, Inc., the Registrant, directly or indirectly, had the following other operating subsidiaries as of May 27, 2001, none of which, individually, constitutes a "significant subsidiary" under Regulation S-X, Rule 1-02(w): GMR Restaurants of Pennsylvania, Inc., a Pennsylvania corporation, doing business as Red Lobster and Olive Garden; GMRI Canada, Inc., a Florida corporation, doing business as Red Lobster, Red Lobster Canada, Olive Garden, and Olive Garden Canada; GMRI Texas L.P., a Texas limited partnership, doing business as Red Lobster, Olive Garden and Bahama Breeze; and GMRI Realty, Inc., a Maryland corporation. The Registrant, directly or indirectly, had other subsidiaries as of May 27, 2001. If considered in the aggregate as a single subsidiary as of May 27, 2001, those other subsidiaries would not constitute a "significant subsidiary" as defined in Regulation S-X, Rule 1-02(w). EX-23 7 exh23.txt EXH23 KPMG EXHIBIT 23 KPMG 111 North Orange Avenue, Suite 1600 P.O. Box 3031 Orlando, FL 32802 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Darden Restaurants, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-93854 and 333-41350) and on Form S-8 (Nos. 333-57410, 333-91579 and 333-69037) of Darden Restaurants, Inc. of our report dated June 15, 2001, relating to the consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 27, 2001 and May 28, 2000, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the fiscal years in the three-year period ended May 27, 2001, which report is incorporated by reference to page 22 of the Registrant's 2001 Annual Report to Stockholders filed as an exhibit to this Annual Report on Form 10-K of Darden Restaurants, Inc. /s/KPMG LLP Orlando, Florida August 15, 2001 EX-24 8 exh24poa.txt EXHIBIT 24 - POWERS EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Daniel B. Burke --------------------------- Daniel B. Burke Date: June 18, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Odie C. Donald --------------------------- Odie C. Donald Date: June 18, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Julius Erving, II --------------------------- Julius Erving, II Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Cornelius McGillicuddy, III ------------------------------- Cornelius McGillicuddy, III Date: June 19, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Michael D. Rose --------------------------- Michael D. Rose Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Hector de J. Ruiz --------------------------- Hector de J. Ruiz Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Maria A. Sastre --------------------------- Maria A. Sastre Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Jack A. Smith ---------------------------- Jack A. Smith Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Rita P. Wilson -------------------------------- Rita P. Wilson Date: June 20, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Bradley D. Blum ------------------------------- Bradley D. Blum Date: June 27, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Richard E. Rivera ---------------------------- Richard E. Rivera Date: June 22, 2001 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 27, 2001, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Blaine Sweatt, III --------------------------- Blaine Sweatt, III Date: June 22, 2001 EX-99 9 exh99.txt EXH99, CAUTIONARY STMTS, 10-K FY01 EXHIBIT 99 CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 From time to time Darden Restaurants, Inc. (the "Company") and its representatives may make written or oral forward-looking statements about the Company's future performance, plans and objectives, long-term goals, forecasts of market trends and other matters. These statements may be contained in the Company's filings with the Securities and Exchange Commission, in the Company's press releases, in other written communications, and in oral statements made by or with the approval of an authorized officer of the Company. Words or phrases such as "believe," "plan," "will likely result", "expect", "intend," "will continue", "is anticipated", "estimate", "project" and similar expressions are intended to identify forward-looking statements. These statements, and any other statements that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended from time to time (the "Act"). In the Company's Form 10-K for the year ended May 27, 2001, these forward-looking statements include, but are not limited to, projections regarding: casual dining sales growth; the ability of the casual dining segment to weather economic downturns; demographic trends; the Company's expansion plans and business development activities; and the Company's long-term goals of increasing market share, expanding margins on incremental sales, and growing earnings. In connection with the "safe harbor" provisions of the Act, the Company is filing the following cautionary statements to identify important factors, risks and uncertainties that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement. Because of these factors, risks and uncertainties, the Company cautions against placing undue reliance on forward-looking statements. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could be incorrect, and there can be no assurance that the forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events, or circumstances arising after the date that the forward-looking statement was made. The following factors, risks and uncertainties, have affected, and may continue to affect, the operating results of the Company and the environment within which the Company conducts its business. If the Company's projections and estimates regarding these key factors differ materially from what actually occurs, the Company's actual results could vary significantly from the performance projected in its forward-looking statements. Competition. The Casual Dining sector of the restaurant industry is intensely competitive in pricing, service, location, personnel, and type and quality of food. The Company competes with national, regional and local organizations primarily through the quality, variety and value perception of its menu items. The number and location of restaurants, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs are also important factors. The Company anticipates that intense competition will continue in all of these areas. Economic, Market and Other Conditions. The Casual Dining sector of the restaurant industry is affected by changes in national, regional and local economic conditions; the seasonality of the Company's business; consumer preferences, including changes in consumer tastes and the level of consumer acceptance of the Company's restaurant concepts; consumer spending patterns; demographic trends; consumer perceptions of food safety; employee availability; weather; traffic patterns; and the type, number and location of competing restaurants. Factors such as inflation, food costs, labor and benefit costs, legal claims, and the availability of management and hourly employees also affect restaurant operations and administrative expenses. The ability of the Company to undertake new restaurant development, as well as improvements and additions to existing restaurants, is affected by economic conditions, including interest rates, and government policies impacting land and construction costs and the cost and availability of borrowed funds. Changes in Food and Other Costs. The profitability of the Company is significantly dependent on its ability to anticipate and react to changes in food, labor, advertising and media, employee benefits and similar costs over which the Company has little control. The price and availability of commodities, including but not limited to items such as shrimp, lobster and dairy products, are subject to fluctuation and could increase or decrease more than the Company expects. The Company is subject to the general risk of inflation, and possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely affect the availability and cost of these and other items it purchases. While in the past, management has generally been able to anticipate and react to changing costs without a material adverse effect on profitability, there can be no assurance that it will be able to do so in the future. Importance of Locations. The success of the Company's restaurants is dependent in substantial part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. Possible declines in neighborhoods where restaurants are located, or economic conditions surrounding those neighborhoods, could result in reduced sales in those locations. Government Regulation. The Company is subject to various federal, state and local laws affecting its business. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, liquor licenses, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. The Company cannot predict the effect on its operations of these laws and regulations or the future enactment of additional legislation regulating these and other areas. Growth Plans. There can be no assurance that the Company will be able to achieve its growth objectives or that new restaurants opened or acquired will be profitable. The opening and success of restaurants depends on various factors, including the identification and availability of suitable and economically viable locations; sales levels at existing restaurants; the negotiation of acceptable lease or purchase terms for new locations; obtaining all required governmental permits, including zoning approvals and liquor licenses, on a timely basis; other regulatory compliance; the availability of necessary contracts and subcontractors and the ability to meet construction schedules; the ability of the Company to manage union activities such as picketing, which could delay construction; the availability of capital at affordable cost to finance growth; changes in the weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time; the ability of the Company to hire and train qualified management personnel; and general economic and business conditions. -----END PRIVACY-ENHANCED MESSAGE-----