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 ====================================================================================================================