-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EIxmOdGKwOGB1NAIKDyz6S+O2hVHWk2GmsmaQtArcBQgXdBw3xzPxmzqdtMyHz8u IgNc6rKdFATJXmzijEJ9uQ== 0000940944-02-000106.txt : 20020819 0000940944-02-000106.hdr.sgml : 20020819 20020819165531 ACCESSION NUMBER: 0000940944-02-000106 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20020526 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DARDEN RESTAURANTS INC CENTRAL INDEX KEY: 0000940944 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 593305930 STATE OF INCORPORATION: FL FISCAL YEAR END: 0526 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13666 FILM NUMBER: 02742863 BUSINESS ADDRESS: STREET 1: 5900 LAKE ELLENOR DR CITY: ORLANDO STATE: FL ZIP: 32809 BUSINESS PHONE: 4072454000 MAIL ADDRESS: STREET 1: 5900 LAKE ELLENOR DRIVE CITY: ORLANDO STATE: FL ZIP: 32809 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL MILLS RESTAURANTS INC DATE OF NAME CHANGE: 19950313 10-K 1 form10kfy02.txt FORM 10K FY02 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 - ----------------------------------------------------------------------- FORM 10-K - ----------------------------------------------------------------------- (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 26, 2002 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission File Number: 1-13666 DARDEN RESTAURANTS, INC. (Exact name of registrant as specified in its charter) Florida 59-3305930 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5900 Lake Ellenor Drive 32809 Orlando, Florida (Zip Code) (Address of principal executive offices) (407) 245-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, without par value New York Stock Exchange and Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $19.81 per share as reported on the New York Stock Exchange on July 22, 2002: $3,393,518,829. Number of shares of Common Stock outstanding as of July 22, 2002: 171,303,323 (excluding 87,543,707 shares held in the Company's treasury). DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement dated August 16, 2002 are incorporated by reference into Part III, and portions of the Registrant's 2002 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV of this Report. PART I Item 1. BUSINESS Introduction Darden Restaurants, Inc. is the largest publicly held casual dining restaurant company in the world.* As of May 26, 2002, we operated 1,211 restaurants in the United States and Canada. In the United States, we operated 1,174 restaurants in 49 states (the exception being Alaska), including 636 Red Lobster(R), 490 Olive Garden(R), 29 Bahama Breeze(R), and 19 Smokey Bones(R) BBQ Sports Bar restaurants. In Canada, we operated 37 restaurants, including 31 Red Lobster and six Olive Garden restaurants. We operate all of our restaurants in the United States and Canada, with no franchising. In Japan, we licensed 33 Red Lobster restaurants to an unaffiliated Japanese corporation that operates the restaurants under an Area Development and Franchise Agreement. Darden is a Florida corporation incorporated in March 1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI and our other subsidiaries own the operating assets of the restaurants. GMRI was originally incorporated in March 1968 as Red Lobster Inns of America, Inc. Our principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407) 245-4000. Unless the context indicates otherwise, all references to Darden, "we", "our" or "us" include Darden, GMRI and our respective subsidiaries. Background We opened our first restaurant, a Red Lobster, in Lakeland, Florida in 1968. Red Lobster was founded by William B. Darden, for whom we are named. We were acquired by General Mills, Inc. in 1970. In May 1995, we became a separate publicly held company when General Mills distributed all outstanding Darden stock to General Mills' stockholders. In recent years our two largest restaurant concepts have resumed growth in the number of restaurants. The number of Red Lobster and Olive Garden restaurants open at the end of fiscal 2002 increased by six and 19, respectively, as compared to the end of fiscal 2001. Red Lobster has grown from six restaurants in operation at the end of fiscal 1970 to 667 units in North America by the end of fiscal 2002. Olive Garden, an internally developed concept, opened its first restaurant in fiscal 1983, and by the end of fiscal 2002 had expanded to 496 restaurants and one food court cafe in North America. Bahama Breeze is an internally developed concept with a Caribbean theme. In fiscal 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At the end of fiscal 2002, there were 29 Bahama Breeze restaurants. Our newest restaurant concept is Smokey Bones BBQ Sports Bar, an internally developed concept. The first restaurant was opened in fiscal 2000 in Orlando, Florida. At the end of fiscal 2002, there were 19 Smokey Bones restaurants. The table on the following page shows our growth and lists the number of restaurants operated by Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones as of the end of each fiscal year since 1970. The final column in the table lists our total sales for the years indicated. - -------------------------- *Source: Nation's Restaurant News, "Special Report: Top 100," June 24, 2002 (based on revenues from company owned restaurants). 1
Company-Operated Restaurants Open at Fiscal Year End Fiscal Red Olive Bahama Smokey Total Total Company Sales Year Lobster Garden (1) Breeze Bones Restaurants(1)(2) ($ in Millions)(3)(4) ---- ------- ---------- ------ ----- ----------------- ------------------ 1970 6 6 3.5 1971 24 24 9.1 1972 47 47 27.1 1973 70 70 48.0 1974 97 97 72.6 1975 137 137 108.5 1976 174 174 174.1 1977 210 210 229.2 1978 236 236 291.4 1979 244 244 337.5 1980 260 260 397.6 1981 291 291 528.4 1982 328 328 614.3 1983 360 1 361 718.5 1984 368 2 370 782.3 1985 372 4 376 842.2 1986 401 14 415 917.3 1987 433 52 485 1,097.7 1988 443 92 535 1,300.8 1989 490 145 635 1,621.5 1990 521 208 729 1,927.7 1991 568 272 840 2,212.3 1992 619 341 960 2,542.0 1993 638 400 1,038 2,737.0 1994 675 458 1,133 2,963.0 1995 715 477 1,192 3,163.3 1996 729 487 1 1,217 3,191.8 1997 703 477 2 1,182 3,171.8 1998 682 466 3 1,151 3,261.6 1999 669 464 6 1,139 3,432.4 2000 654 469 14 2 1,139 3,675.5 2001 661 477 21 9 1,168 3,992.4 2002 667 496 29 19 1,211 4,368.7 - ---------------------------- (1) Does not include one Olive Garden Cafe restaurant. (2) Includes only Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones restaurants. Does not include other restaurant concepts operated by us in these years that are no longer in operation or which are no longer owned by us. (3) Includes total sales from all of our operations, including sales from restaurant concepts besides Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones that are no longer in operation or which are no longer owned by us. (4) Emerging Issues Task Force Issue 00-14 "Accounting for Certain Sales Incentives" requires sales incentives to be classified as a reduction of sales. We adopted Issue 00-14 in the fourth quarter of fiscal 2002. For purposes of this presentation, sales incentives have been reclassified as a reduction of sales for fiscal 1998 through 2002. Sales incentives for fiscal years prior to 1998 have not been reclassified.
2 Strategy The restaurant industry is generally considered to be comprised of four segments: quick service, midscale, casual dining and fine dining. The industry is highly fragmented and includes many independent operators and small chains. We believe that capable operators of strong multi-unit concepts have the opportunity to increase their share of the casual dining segment. We plan to grow by increasing the number of restaurants in each of our existing concepts and by developing or acquiring additional concepts that can be expanded profitably. While we are a leader in the casual dining segment, we know we cannot be successful without a clear sense of who we are. Our core purpose is "To nourish and delight everyone we serve." This core purpose is supported by our core values: o Integrity and fairness; o Respect and caring; o Diversity; o Always learning/always teaching; o Being "of service"; o Teamwork; and o Excellence. To support our core purpose, we have established a framework of three strategic imperatives or "building blocks": o leadership development as a core competency; o service and hospitality excellence; and o culinary and beverage excellence. We support these strategic imperatives by developing two key enablers - diversity literacy and technology literacy - throughout the organization. We believe that our continuing focus on these three building blocks, supported by our commitment to diversity and technology, provides a strong foundation for future growth. Restaurant Concepts Red Lobster Red Lobster is the largest casual dining, seafood-specialty restaurant operator in the United States. It offers an extensive menu featuring fresh fish, shrimp, crab, lobster, scallops and other seafood in a casual atmosphere. The menu includes a variety of specialty seafood and non-seafood entrees, appetizers and desserts. Dinner entree prices range from $8.99 to $24.99, with fresh fish and certain lobster items available at market price. Lunch entree prices range from $5.25 to $9.99. The entree price also includes side items and our signature Cheddar Bay biscuits. During fiscal 2002, the average check per person was between $15.50 and $16.50, with alcoholic beverages accounting for about nine percent of Red Lobster's sales. Red Lobster maintains approximately 128 different menus to reflect geographic differences in consumer preferences, prices and selections in its trade areas, as well as a lower-priced children's menu. Fiscal 2002 was a record year in both sales and profits for Red Lobster. Total sales of $2.34 billion for the 2002 fiscal year were 7.1 percent above last year and average sales per restaurant for the year were $3.5 million - record levels for Red Lobster. Operating profit for the fiscal year increased at a double-digit percentage rate and established a new record for Red Lobster. As of the end of fiscal 2002, Red Lobster had enjoyed 18 consecutive quarters of U.S. same-restaurant sales increases. 3 Olive Garden Olive Garden is the market share leader among casual dining Italian restaurants in the United States. Olive Garden's menu includes a variety of authentic Italian foods featuring fresh ingredients, and an expanded wine list that includes a broad selection of wines imported from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sauteed specialties with chicken, seafood and fresh vegetables; grilled meats; and a variety of desserts. Olive Garden also uses coffee imported from Italy for its espresso and cappuccino. Dinner entree prices range from $7.50 to $17.95, and most lunch entree prices range from $5.75 to $8.95. The price of each entree also includes as much fresh salad or soup as a guest desires. During fiscal 2002, the average check per person was $12.50 to $13.50, with alcoholic beverages accounting for about nine percent of Olive Garden's sales. Olive Garden maintains approximately 24 different dinner menus and 23 lunch menus to reflect geographic differences in consumer preferences, prices and selections in its trade areas, as well as two different lower-priced children's menus. Fiscal 2002 was a record year for both sales and profits at Olive Garden. Olive Garden's total sales for the 2002 fiscal year were $1.86 billion, up 9.5 percent from the prior year, and its annual average sales per restaurant increased to $3.9 million - both record levels. Olive Garden had a double-digit percentage increase in operating profit for the seventh consecutive fiscal year, reaching a new high in operating profit as well. Olive Garden has had 31 consecutive quarters of U.S. same-restaurant sales increases as of the end of fiscal 2002. Bahama Breeze Bahama Breeze is a Caribbean-themed restaurant that offers guests a distinctive island dining experience. The first Bahama Breeze opened in 1996 and met with strong positive consumer response. We continued to test the concept by opening a limited number of additional restaurants in each of the following years, and began national expansion of the concept in 1998. In fiscal 2002, sales at Bahama Breeze surpassed $125 million and we opened eight new restaurants in five new markets, bringing the total to 29 restaurants in 20 markets. The concept continues to be well received by guests, with strong sales volumes. We plan to open six to ten new Bahama Breeze restaurants in fiscal 2003. Smokey Bones Our newest casual dining concept, Smokey Bones BBQ Sports Bar, combines barbeque with a relaxed sports bar atmosphere. We opened the first Smokey Bones in September 1999, and began national expansion of the concept in fiscal 2002. There are currently 19 Smokey Bones restaurants, and we plan to open 20 to 25 new Smokey Bones restaurants in fiscal 2003. We believe that Smokey Bones has strong expansion potential and could become at least a $1.5 billion operating concept in the future. Recent and Planned Growth During fiscal 2002, we opened 49 new restaurants (excluding the relocation of existing restaurants to new sites and the rebuilding of restaurants at existing sites) and closed seven restaurants. This resulted in a net increase of 42 restaurants in operation (or 43, including relocations, which net each other out, and rebuilds). We plan to open approximately 54 to 72 new Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones restaurants during fiscal 2003 (excluding relocations and rebuilds). Our actual and projected new openings by concept (excluding relocations and rebuilds ) are shown below.
Actual New Projected New Restaurant Openings Restaurant Openings Fiscal 2002 Fiscal 2003 ----------- ----------- Red Lobster................................ 11 8-12 Olive Garden............................... 20 20-25 Bahama Breeze.............................. 8 6-10 Smokey Bones............................... 10 20-25 ---- ----- Totals............................... 49 54-72 ==== =====
4 Our objective is to continue to expand our current portfolio of restaurant concepts, and to develop or acquire additional concepts that can be expanded profitably. We are currently testing new ideas and concepts, and expanding Bahama Breeze and Smokey Bones nationally in light of favorable consumer response. We also regularly evaluate potential acquisition candidates to assess whether they would satisfy our strategic and financial objectives. At present, we have not identified any specific acquisitions. We will continue to focus on improving operational returns at Olive Garden and Red Lobster, and will limit new restaurant expansion of those concepts to the highest-potential sites. Olive Garden's expansion will include its recently developed "Tuscan Farmhouse" design, an outgrowth of our collaboration with Rocca delle Macie, a family-owned winery in Tuscany. In addition, we plan to expand Bahama Breeze and Smokey Bones at a pace that will enable each new restaurant to capture the concept's full potential. The specific number of openings will depend on many factors, such as our ability to locate appropriate sites, negotiate acceptable purchase or lease terms, obtain necessary local governmental permits, complete construction and recruit and train restaurant management and hourly personnel. We consider location to be a critical factor in determining a restaurant's long-term success, and we devote significant effort to the site selection process. Prior to entering a market, we conduct a thorough study to determine the optimal number and placement of restaurants. Our site selection process incorporates a variety of analytical techniques to evaluate key factors. These factors include trade area demographics, such as target population density and household income levels; competitive influences in the trade area; the site's visibility, accessibility and traffic volume; and proximity to activity centers such as shopping malls, hotel/motel complexes, offices and universities. Members of senior management evaluate, inspect and approve each restaurant site prior to its acquisition. Constructing and opening a new restaurant typically takes 120 to 180 days after the site is acquired and permits are obtained. The following table illustrates the approximate average capital investment, size and dining capacity of the 11 Red Lobster and 20 Olive Garden restaurants that were opened during fiscal 2002 (excluding relocations, rebuilds and conversion of existing restaurants).
Capital Square Dining Dining Investment(1) Feet(2) Seats(3) Tables(4) Red Lobster........................ $3,634,000 6,865 204 60 Olive Garden....................... $3,814,000 7,838 213 50 (1) Includes net present value of leases, but excludes working capital. (2) Includes all space under the roof, including the coolers and freezers, but excludes gazebos, pavilions and porte cocheres. (3) Includes bar dining seats and patio seating, but excludes bar stools. (4) Includes patio dining tables.
We systematically review the performance of our restaurants to ensure that each meets our standards. When a restaurant falls below minimum standards, we conduct a thorough analysis to determine the causes, and implement marketing and operational plans to improve that restaurant's performance. If performance does not improve to acceptable levels, the restaurant is evaluated for relocation, closing or conversion to one of our other concepts. During fiscal 2002, we permanently closed five, rebuilt one and relocated six Red Lobster restaurants in the United States, and closed one Red Lobster restaurant in Canada. During the same period, we permanently closed one and relocated one Olive Garden restaurant in the United States, and none in Canada. Restaurant Operations We believe that high-quality restaurant management is critical to our long-term success. We also believe that our leadership position, strong success-oriented culture and various short-term and long-term incentive programs, including stock options and restricted stock, help attract and retain highly motivated restaurant managers. 5 Our restaurant management structure varies by concept and restaurant size. Each restaurant is led by a general manager and one to four additional managers, depending on the operating complexity and sales volume of the restaurant. Each restaurant also employs approximately 65 to 140 hourly employees, most of whom work part-time. We issue detailed operations manuals covering all aspects of restaurant operations, as well as food and beverage manuals which detail the preparation procedures of our formulated recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with our operating standards. At our two largest concepts, Red Lobster and Olive Garden, restaurant general managers report to directors, and each director is responsible for seven to 14 restaurants. Restaurants are visited regularly by all levels of supervision to help ensure strict adherence to all aspects of our standards. Each concept's vice president or director of training, together with senior operations executives, is responsible for developing and maintaining that concept's operations training programs. These efforts include a 12-to 15-week training program for management trainees, and continuing development programs for managers, supervisors and directors. The emphasis of the training and development programs varies by restaurant concept, but includes leadership, restaurant business management and culinary skills. We also use a highly structured training program to open new restaurants, including deploying training teams experienced in all aspects of restaurant operations. The opening training teams typically begin work one week prior to opening and remain at the new restaurant one week following the opening. They are redeployed as appropriate to enable a smooth transition to the restaurant's operating staff. Quality Assurance Our Quality Assurance Department helps ensure that all restaurants provide high-quality food in a clean and safe environment. Through rigorous physical evaluation and testing at our North American laboratories and through "Point Source Inspection" in southeastern Asia, we seek to purchase only seafood that meets or exceeds our specifications. Since 1976, we have maintained a microbiological laboratory to routinely test seafood and other commodities for quality and microbiological safety. In addition, quality assurance managers visit each restaurant periodically throughout the year to review food handling and to provide education and training in food safety and sanitation. The quality assurance managers also serve as a liaison to regulatory agencies on issues relating to food safety. We use independent third party auditors to inspect and evaluate commodity vendors. In this manner, we attempt to ensure that our suppliers maintain good manufacturing practices and operate with the comprehensive industry standard Hazard Analysis Critical Control Points programs in place. Purchasing and Distribution Our ability to ensure a consistent supply of high-quality food and supplies at competitive prices to all of our restaurant concepts depends upon procurement from reliable sources. Our purchasing staff sources, negotiates and purchases food and supplies from more than 2,500 suppliers in 45 countries. Suppliers must meet strict quality control standards in the development, harvest, catch and production of food products. Competitive bids, long-term contracts and long-term vendor relationships are routinely used to manage availability and cost of products. We believe that our seafood purchasing capabilities are a significant competitive advantage. Our purchasing staff travels routinely within the United States and internationally to source more than 100 varieties of top-quality seafood at competitive prices. We believe that we have established excellent long-term relationships with key seafood vendors, and source product directly from producers (not brokers or middlemen) predominantly and whenever possible. We operate a procurement office in Singapore to source products directly from Asia. While the supply of certain seafood species is volatile, we believe that we have the ability to identify alternative seafood products and to adjust our menus as necessary. All other essential food products are available, or can be made available upon short notice, from alternative qualified suppliers. Because of the relatively rapid turnover of perishable food products, inventories in the restaurants have a modest aggregate dollar value in relation to revenues. Controlled inventories of specified products are distributed to all restaurants through national distribution companies. Advertising and Marketing We believe that we have developed significant marketing and advertising capabilities. Our size enables us to be a dominant advertiser in the casual dining segment of the restaurant industry. We leverage the efficiency of 6 national network television advertising and supplement it with local market television advertising. Our restaurants appeal to a broad spectrum of consumers and we use advertising and product promotions to attract customers. We implement periodic promotions as appropriate to maintain and increase our sales and profits. We also rely on radio and newspaper advertising, as well as newspaper and direct mail couponing programs, as appropriate, to attract customers. We have developed and consistently use sophisticated consumer marketing research techniques to monitor customer satisfaction and evolving expectations. Employees At the end of fiscal 2002, we employed approximately 133,200 persons. Of these employees, approximately 1,300 were corporate or concept personnel located in our restaurant support center in Orlando, Florida, approximately 5,800 were restaurant management personnel in the restaurants or in field offices, and the remainder were hourly restaurant personnel. Of the restaurant support center employees, approximately 58% were management personnel and the balance were administrative or office employees. Our operating executives have an average of more than 14 years of experience with us. The restaurant general managers average 11 years with us. We believe that we provide working conditions and compensation that compare favorably with those of our competitors. Most employees, other than restaurant management and corporate management, are paid on an hourly basis. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good. Management Information Systems We strive for leadership in the restaurant business by using technology as a competitive advantage. Since 1975, computers located in the restaurants have been used to assist in the management of the restaurants. We have implemented systems targeted at improved financial control, cost management, enhanced guest service and improved employee effectiveness. Management information systems are designed to be used across restaurant concepts, yet are flexible enough to meet the unique needs of each restaurant concept. During fiscal 2002, we implemented a suite of web-enabled financial systems and a high-speed data network connecting all restaurants to all current and future applications. We are currently completing an upgrade of our human resource (including payroll and benefits) systems using web-enabled and fully integrated application suites. Restaurant hardware and software support is provided or coordinated from the restaurant support center in Orlando, Florida, seven days a week, 24 hours a day. A communications network sends and receives critical business data to and from the restaurants throughout the day and night, providing timely and extensive information on business activity in every location. The restaurant support center houses our data center, which contains sufficient computing power to process information from all restaurants quickly and efficiently. Our information is processed in a secured environment to protect both the actual data and the physical assets. We guard against business interruption by maintaining a disaster recovery plan, which includes storing critical business information off-site, testing the disaster recovery plan at a hot-site facility and providing on-site power backup via a large diesel generator. We use internally developed proprietary software, as well as purchased software, with proven, non-proprietary hardware. This allows processing power to be distributed effectively to each of our restaurants. Our management believes its current systems and the upgrades currently underway will position us well to support current needs and future growth. We are committed to maintaining an industry leadership position in information systems and computing technology. We use a strategic information systems planning process that involves senior management and is integrated into our overall business planning. Information systems projects are prioritized based upon strategic, financial, regulatory and other business advantage criteria. Competition The restaurant industry is intensely competitive with respect to food quality, price, service, restaurant location, concept, attractiveness of facilities, and effectiveness of advertising and marketing programs. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers' discretionary purchasing power. We compete within each market with national and regional chains as well as locally-owned restaurants, not only for customers but also for management and hourly personnel and suitable real estate sites. Restaurants also face growing competition from the supermarket industry, which offers "convenient 7 meals" in the form of improved entrees and side dishes from the deli section. We expect intense competition to continue in all of these areas. Other factors pertaining to our competitive position in the industry are addressed under the sections entitled "Forward-Looking Statements," "Purchasing and Distribution," "Advertising and Marketing," and "Management Information Systems," elsewhere in this report. Trademarks and Related Agreements We regard our Darden Restaurants(R), Red Lobster(R), Olive Garden(R), Bahama Breeze(R) and Smokey Bones(R) BBQ Sports Bar service marks, and other variations of these service marks, as having significant value and as being important in marketing the restaurants. Our policy is to pursue registration of our important service marks and trademarks whenever possible and to oppose vigorously any infringement of them. Our only restaurant operations outside of North America historically have been conducted through an Area Development and Franchise Agreement with Red Lobster Japan Co., Ltd. (Red Lobster Japan), an unaffiliated Japanese corporation. In December 2001, the parent company of Red Lobster Japan agreed to sell all the shares of Red Lobster Japan to another Japanese corporation, subject to our approval. In February 2002, we entered into an amendment to the Franchise Agreement to provide our approval, and to make certain modifications to the terms of the agreement. Red Lobster Japan operated 33 Red Lobster restaurants in Japan as of May 26, 2002. We do not have an ownership interest in Red Lobster Japan, but receive royalty income under the Franchise Agreement. The amount of this income is not material to our consolidated financial statements. Seasonality Our sales volumes fluctuate seasonally. During fiscal years 2002, 2001 and 2000, our sales were highest in the spring, lowest in the fall, and comparable during winter and summer. Holidays, severe weather, storms and similar conditions may impact sales volumes seasonally in some operating regions. Government Regulation We are subject to various federal, state and local laws affecting our business. Each of our restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located. The development and operation of restaurants depend on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. To date, we have not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals. Presently about nine percent of our sales are attributable to the sale of alcoholic beverages. Regulations governing their sale require licensure by each site (in most cases, on an annual basis), and licenses may be revoked or suspended for cause at any time. These regulations relate to many aspects of restaurant operation, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain these licenses would adversely affect the restaurant's operations. We also are subject in certain states to "dram-shop" statutes, which generally provide an injured party with recourse against an establishment that wrongfully serves alcoholic beverages to an intoxicated person, who then causes injury. We carry liquor liability coverage as part of our comprehensive general liability insurance. We also are subject to federal and state minimum wage laws and other laws governing such matters as overtime, tip credits, working conditions, safety standards, and hiring and employment practices. Changes in these laws during fiscal 2002 have not had a material effect on our operations. We currently are operating under a Tip Rate Alternative Commitment ("TRAC") agreement with the Internal Revenue Service. Through increased educational and other efforts in the restaurants, the TRAC agreement reduces the likelihood of potential chain-wide employer-only FICA assessments for unreported tips. 8 We are subject to federal and state environmental regulations, but these rules have not had a material effect on our operations. During fiscal 2002, there were no material capital expenditures for environmental control facilities and no such expenditures are anticipated. Our facilities must comply with the applicable requirements of the Americans With Disabilities Act of 1990 ("ADA") and related state statutes. Under the ADA and related state laws, when constructing or undertaking significant remodeling of our restaurants, we must make them more readily accessible to disabled persons, to better provide service to disabled persons, or make reasonable accommodation for the employment of disabled persons. Executive Officers Our executive officers as of August 19, 2002 are: Joe R. Lee, age 61, has been our Chief Executive Officer since December 1994 and Chairman of the Board since April 1995. Mr. Lee joined Red Lobster in 1967 as a member of its opening management team, and was named its President in 1975. From 1970 to 1995, he held various positions with General Mills, Inc., a manufacturer and marketer of consumer food products and our former parent, including Vice Chairman, with responsibility for various consumer foods businesses and corporate staff functions, Chief Financial Officer and Executive Vice President, Finance and International Restaurants. Bradley D. Blum, age 48, has been our Vice Chairman since March 2002, and acting President of Smokey Bones since August 2002.**. He was our Executive Vice President from September 1997 until March 2002, and President of Olive Garden from December 1994 until March 2002, and has been a Director since 1997. He joined us in 1994 as Senior Vice President of Marketing for Olive Garden and served as our Senior Vice President from 1995 until 1997. Prior to that time, he held various positions during a 16-year career with General Mills, Inc., a manufacturer and marketer of consumer food products and our former parent. Richard E. Rivera, age 55, has been our Vice Chairman since March 2002, and acting President of Bahama Breeze since August 2002.** He was our Executive Vice President, President of Red Lobster Restaurants and a Director from December 1997 until March 2002. He served as President and Chief Executive Officer of Chart House Restaurants, Inc. from July until December 1997, as President and Chief Executive Officer of RARE Hospitality International, Inc., the owner of LongHorn Steakhouse restaurants, from 1994 to 1997, and as President and Chief Executive Officer of TGI Friday's, Inc. from 1988 to 1994. He began his career with Steak & Ale Restaurants of America and has held various leadership positions in the industry over the last 25 years, including Director of the National Restaurant Association. Blaine Sweatt, III, age 54, has been our Executive Vice President since April 1995, President, New Business Development since September 1996, and a Director since 1995. He joined Red Lobster in 1976 and was named Director of New Restaurant Concept Development in 1981. From 1976 to 1995, he held various positions with General Mills, Inc., a manufacturer and marketer of consumer food products and our former parent. He led the teams that developed the Olive Garden, Bahama Breeze and Smokey Bones concepts, among others. Laurie B. Burns, age 40, has been our Senior Vice President, Development since September 2000. She joined us in April 1999 as Vice President of Development for Red Lobster. She was a private real estate consultant from October 1998 until joining us in April 1999, and was Regional Vice President for Development for the Eastern United States at Homestead Village, an extended-stay hotel company, from 1995 to 1998. Linda J. Dimopoulos, age 51, has been our Senior Vice President, Chief Information Officer with overall responsibility for information services and systems since December 1999. She joined us in 1982, and was named Director, Corporate Analysis in 1985. In 1986, she was named Vice President, Controller for Red Lobster, and then Vice President, Information Services. She served as Senior Vice President, Financial Operations of Red Lobster from 1993 to July 1998, and as our Senior Vice President, Corporate Controller and Business Information Systems from July 1998 until assuming her current position. 9 Gary Heckel, age 49, served as our Senior Vice President from June 1999, and President of Bahama Breeze from July 1998, until his resignation in August 2002.** He joined us in 1995 as Vice President, Operations in our New Business Development division. He served as Senior Vice President, Operations for Bahama Breeze from August 1997 until July 1998. His career in the restaurant industry includes employment with several major quick service and casual dining restaurant companies, such as Burger King Corporation, Taco Bell Corp. and TGI Friday's, Inc. Stephen E. Helsel, age 57, has been our Senior Vice President, Corporate Controller since December 1999. He joined us in 1973 as an accountant with Red Lobster, and was named Vice President, Controller of Red Lobster in 1989. He served as our Vice President, Controller, Accounting Services from 1991 to 1996, and as Senior Vice President, Information Services from 1996 until December 1999. Daniel M. Lyons, age 49, has been our Senior Vice President, Human Resources since January 1997. He joined us in 1993 as Senior Vice President of Personnel for Olive Garden. Prior to joining Olive Garden, he spent 18 years with the Quaker Oats Company. Andrew Madsen, age 46, has been our Senior Vice President and President of Olive Garden since March 2002. He joined us in December 1998 as Executive Vice President of Marketing for Olive Garden. From 1997 until joining us, he was President of International Master Publishers, Inc., a company that developed and marketed consumer information products such as magazines and compact discs. From 1993 until 1997, he worked at James River (now part of Georgia-Pacific Corporation, a diversified paper and building products manufacturer), where he held various positions, including Vice President/General Manager for the Dixie consumer products unit. Robert W. Mock, age 50, served as our Senior Vice President from July 1998, and President of Smokey Bones from September 1999, until leaving those roles in August 2002.** He joined us in 1969. He served as Executive Vice President and General Manager of Red Lobster Canada from 1992 to 1994, and as Executive Vice President, Operations for Olive Garden from 1994 until July 1998. Edna Morris, age 50, has been our Senior Vice President and President of Red Lobster since March 2002. She joined us in October 1998 and served from then until March 2002 as Executive Vice President of Operations for Red Lobster. From 1992 until joining us, she held various positions with Advantica Restaurant Group, Inc., the parent of Denny's and other restaurant companies, including President of Quincy's Family Steakhouse from 1996 to 1998 and Executive Vice President during 1998. Barry Moullet, age 44, has been our Senior Vice President, Purchasing, Distribution and Food Safety since June 1999. He joined us in July 1996 as Senior Vice President, Purchasing and Distribution. Prior to joining us, he spent 15 years in the purchasing field in various positions with Restaurant Services, Inc., a Burger King purchasing co-operative, Kentucky Fried Chicken and the Pillsbury Company. Clarence Otis, Jr., age 46, has been our Executive Vice President, Chief Financial Officer since March 2002. He was our Senior Vice President, Chief Financial Officer from December 1999 until March 2002. He joined us in 1995 as Vice President and Treasurer. He served as our Senior Vice President, Investor Relations and Treasurer from July 1997 to July 1998, and as Senior Vice President, Finance and Treasurer from July 1998 until December 1999. Prior to joining us, he was employed by Chemical Securities, Inc., an investment banking firm, where he had been Managing Director and Manager of Public Finance since 1991. Paula J. Shives, age 51, has been our Senior Vice President, General Counsel and Secretary since June 1999. She served as Senior Vice President, General Counsel and Secretary (1995-1999) and Associate General Counsel (1985-1995) of Long John Silver's Restaurants, Inc., until May 1999. Richard J. Walsh, age 50, has been our Senior Vice President, Corporate Relations since 1994. He joined General Mills, Inc., our former parent, in 1984 as Manager of Government Affairs for Red Lobster. He served as Vice President of Government and Community Relations for General Mills Restaurants, Inc. from 1987 until assuming his current position in December 1994. 10 ** On August 19, 2002, we announced that Vice Chairman Brad Blum will serve as acting President of Smokey Bones, and that Smokey Bones President Bob Mock was leaving his role as President of Smokey Bones and Senior Vice President of Darden in order to take a personal leave of absence to devote more time to personal and family priorities. Also on August 19, 2002, we announced that Vice Chairman Dick Rivera will serve as acting President of Bahama Breeze, and that Bahama Breeze President Gary Heckel had announced his resignation. Mr. Heckel will serve in a consulting role for Bahama Breeze. Forward-Looking Statements Certain information included in this report and other materials filed or to be filed by us with the Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our future performance, plans and objectives, long-term goals, forecasts of market trends and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Words or phrases such as "believe," "plan," "will likely result," "expect," "intend," "will continue," "is anticipated," "estimate," "project" and similar expressions are intended to identify forward-looking statements. These statements, and any other statements that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended from time to time (the "Act"). These forward-looking statements include, but are not limited to, projections regarding: casual dining sales growth; the ability of the casual dining segment to weather economic downturns; demographic trends; our expansion plans, business development activities and future sales expectations; and our long-term goal of increasing market share. In connection with the "safe harbor" provisions of the Act, we are filing the following cautionary statements to identify important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could be incorrect, and there can be no assurance that the forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. We do not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events, or circumstances arising after the date that the forward-looking statement was made. The following factors, risks and uncertainties, have affected, and may continue to affect, our operating results and the environment within which we conduct our business. If our projections and estimates regarding these key factors differ materially from what actually occurs, our actual results could vary significantly from the performance projected in its forward-looking statements. Competition. The casual dining sector of the restaurant industry is intensely competitive in pricing, service, location, personnel, and type and quality of food. We compete with national, regional and local organizations primarily through the quality, variety and value perception of menu items. The number and location of restaurants, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs are also important factors. We anticipate that intense competition will continue in all of these areas. 11 Economic, Market and Other Conditions. The casual dining sector of the restaurant industry is affected by changes in national, regional and local economic conditions; the seasonality of our business; consumer preferences, including changes in consumer tastes and the level of consumer acceptance of our restaurant concepts; consumer spending patterns; demographic trends; consumer perceptions of food safety, that could be negatively impacted by publicity concerning food-borne illnesses; employee availability; weather; traffic patterns; and the type, number and location of competing restaurants. Factors such as inflation, food costs, labor and benefit costs, legal claims, and the availability of management and hourly employees also affect restaurant operations and administrative expenses. Our ability to undertake new restaurant development, as well as improvements and additions to existing restaurants, is affected by economic conditions, including interest rates, and government policies impacting land and construction costs and the cost and availability of borrowed funds. Changes in Food Costs and Other Costs. Our profitability is significantly dependent on our ability to anticipate and react to changes in the cost of food, labor, advertising and media, employee benefits and similar costs over which we have little control. The price and availability of commodities, including but not limited to items such as shrimp, lobster and dairy products, are subject to fluctuation and could increase or decrease more than we expect. We are subject to the general risk of inflation, and possible shortages or interruptions in supply caused by adverse weather or other conditions that could adversely affect the availability and cost of these and other items we buy. There can be no assurance that management will be able to anticipate and react to increased costs without a material adverse effect on profitability. Importance of Locations. The success of our restaurants depends in large part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. Possible declines in neighborhoods where restaurants are located, or economic conditions surrounding those neighborhoods, could result in reduced sales in those locations. Government Regulation. We are subject to various federal, state and local laws affecting our business. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, liquor licenses, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. We cannot predict the effect on our operations of these laws and regulations or the future enactment of additional legislation regulating these and other areas. Growth Plans. There can be no assurance that we will be able to achieve our growth objectives or that new restaurants opened or acquired will be profitable. The opening and success of restaurants depends on various factors, including the identification and availability of suitable and economically viable locations; sales levels at existing restaurants; the negotiation of acceptable lease or purchase terms for new locations; obtaining all required governmental permits, including zoning approvals and liquor licenses, on a timely basis; other regulatory compliance; the availability of necessary contracts and subcontractors and the ability to meet construction schedules; our ability to manage union activities such as picketing, which could delay construction; the availability of capital at affordable cost to finance growth; changes in the weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time; our ability to hire and train qualified management personnel; and general economic and business conditions. 12 Item 2. PROPERTIES As of May 26, 2002, we operated 1,211 restaurants (including 667 Red Lobster, 496 Olive Garden, 29 Bahama Breeze and 19 Smokey Bones restaurants) and one Olive Garden Cafe in the following locations: Alabama (19) Iowa (14) Nevada (11) South Dakota (3) Arizona (27) Kansas (11) New Hampshire (3) Tennessee (26) Arkansas (10) Kentucky (14) New Jersey (27) Texas (104) California (90) Louisiana (7) New Mexico (8) Utah (11) Colorado (25) Maine (3) New York (47) Vermont (1) Connecticut (9) Maryland (20) North Carolina (27) Virginia (40) Delaware (4) Massachusetts (8) North Dakota (4) Washington (21) Florida (124) Michigan (49) Ohio (70) West Virginia (5) Georgia (46) Minnesota (21) Oklahoma (17) Wisconsin (19) Hawaii (1) Mississippi (7) Oregon (10) Wyoming (2) Idaho (6) Missouri (27) Pennsylvania (57) Canada (37) Illinois (54) Montana (2) Rhode Island (2) Indiana (37) Nebraska (7) South Carolina (18)
Of our 1,211 restaurants and the one Olive Garden Cafe open on May 26, 2002, 777 were located on owned sites and 435 were located on leased sites. The 435 leases are classified as follows: Land-Only Leases (we own buildings and equipment)............................ 320 Ground and Building Leases................................................... 61 Space/In-Line/Other Leases................................................... 54 ---- Total............................................................... 435 ===
During fiscal 1999, we formed two subsidiary corporations, each of which elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code. These elections limit the activities of both corporations to holding certain real estate assets. The formation of these two REITs is designed primarily to assist us in managing our real estate portfolio and possibly to provide a vehicle to access capital markets in the future. Both REITs are non-public REITs. Through our subsidiary companies, we indirectly own 100 percent of all voting stock and greater than 99.5 percent of the total value of each REIT. For financial reporting purposes, both REITs are included in our consolidated group. We own our executive offices, culinary center and training facilities in Orlando, Florida. Except in limited instances, our restaurant sites and other facilities are not subject to mortgages or encumbrances securing money borrowed by us from outside sources. In the opinion of our management, all buildings and equipment are in good condition, suitable for their purposes and adequate for our current and foreseeable needs. See also Note 4 "Land, Buildings and Equipment" and Note 11 "Leases" of Notes to Consolidated Financial Statements on pages 33 and 37, respectively, of the Company's 2002 Annual Report to Shareholders, incorporated herein by reference. Item 3. LEGAL PROCEEDINGS From time to time, we are made a party to legal proceedings arising in the ordinary course of business. We do not believe that the results of these legal proceedings, even if unfavorable to us, will have a materially adverse impact on our financial position, results of operations or cash flows. See the section entitled "Government Regulation" for a discussion of various federal, state and local regulatory matters. 13 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information concerning the dividends and high and low intraday sales prices for our common shares on the New York Stock Exchange for each full quarterly period during fiscal 2001 and 2002 contained in Note 18, "Quarterly Data", on page 43 of our 2002 Annual Report to Shareholders is incorporated herein by reference. As of July 22, 2002, there were approximately 38,027 record holders of our common shares. Item 6. SELECTED FINANCIAL DATA The information for fiscal 1998 through 2002, contained in the Five-Year Financial Summary on page 44 of our 2002 Annual Report to Shareholders, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 through 23 of our 2002 Annual Report to Shareholders is incorporated herein by reference. Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The text under the heading "Quantitative and Qualitative Disclosures About Market Risk" contained within "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 23 of our 2002 Annual Report to Shareholders is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Consolidated Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders' Equity and Accumulated Other Comprehensive Income, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 24 through 44 of our 2002 Annual Report to Shareholders are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the sections entitled "Who Are This Year's Nominees?" on pages 6 through 8, "What Are the Committees of the Board?" on pages 17 through 18, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 36 of our definitive Proxy Statement dated August 16, 2002, is incorporated herein by reference. Information regarding executive officers is contained in Part I above under the heading "Executive Officers." 14 Item 11. EXECUTIVE COMPENSATION The information contained in the sections entitled "How Are Directors Compensated?" on page 18, "Summary Compensation Table" on pages 23-24, "Option Grants in Last Fiscal Year" on page 25, "Stock Option Exercises and Holdings" on page 26, "Long-Term Incentive Plans - Awards in Last Fiscal Year" on page 25, "Do Executive Officers Currently Participate in a Defined Benefit Retirement Plan?" on page 27, "Do Executive Officers Participate in a Non-Qualified Deferred Compensation Plan" on page 27, "Do Executive Officers Have Any Change-in-Control Arrangements?" on page 27, and "Compensation Committee Interlocks and Insider Participation" on page 32 of our definitive Proxy Statement dated August 16, 2002, is incorporated herein by reference. The information appearing in the Proxy Statement under the heading "Compensation Committee Report" (except under the heading "Compensation Committee Interlocks and Insider Participation") is not incorporated herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the sections entitled "Security Ownership of Principal Shareholders" on page 22, "Security Ownership of Management" on pages 20-21 and "Equity Compensation Plan Information", including the material under the questions "What Are the Key Features of the 1995 Plan?", "What Are the Key Features of the 2002 Plan?", What Are the Key Features of the Director Stock Plan?", and "What Are the Key Features of the Compensation Plan for Non-Employee Directors?" on pages 14-16 of our definitive Proxy Statement dated August 16, 2002, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the sections entitled "Do We Provide Incentives for Executives to Meet Their Share Ownership Guidelines?" on page 28, and "Are There Any Other Relationships or Related Transactions Between Us and Our Management?" on page 28 of our definitive Proxy Statement dated August 16, 2002, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Statements of Earnings for the fiscal years ended May 26, 2002, May 27, 2001, and May 28, 2000 (incorporated by reference to page 25 of our 2002 Annual Report to Shareholders). Consolidated Balance Sheets at May 26, 2002 and May 27, 2001 (incorporated by reference to page 26 of our 2002 Annual Report to Shareholders). Consolidated Statements of Changes in Stockholders' Equity and Accumulated Other Comprehensive Income for the fiscal years ended May 26, 2002, May 27, 2001, and May 28, 2000 (incorporated by reference to page 27 of our 2002 Annual Report to Shareholders). Consolidated Statements of Cash Flows for the fiscal years ended May 26, 2002, May 27, 2001, and May 28, 2000 (incorporated by reference to page 28 of our 2002 Annual Report to Shareholders). Notes to Consolidated Financial Statements (incorporated by reference to pages 29 through 44 of our 2002 Annual Report to Shareholders). 2. Financial Statements Schedules: Not applicable. 15 3. Exhibits: Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed, and in lieu thereof, we agree to furnish copies thereof to the Securities and Exchange Commission upon request. Exhibit Number Title 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to our Registration Statement on Form 10 effective May 5, 1995). 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to our Registration Statement on Form 10 effective May 5, 1995). 4(a) Rights Agreement dated as of May 28, 1995 between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as amended May 23, 1996, assigned to Wachovia Bank, National Association (formerly known as First Union National Bank), as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to our Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 4(b) Indenture dated as of January 1, 1996, between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as Trustee (incorporated herein by reference to our Current Report on Form 8-K filed February 9, 1996). * 10(a) Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995, as amended as of July 26, 2002. * 10(b) Darden Restaurants, Inc. FlexComp Plan, as amended as of July 26, 2002. * 10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to our Annual Report on Form 10-K for the fiscal year ended May 26, 1996). * 10(d) Supplemental Pension Plan of Darden Restaurants, Inc.(incorporated herein by reference to Exhibit 10(d) to our Registration Statement on Form 10 effective May 5, 1995). * 10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to our Registration Statement on Form 10 effective May 5, 1995). * 10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended as of July 26, 2002. * 10(g) Darden Restaurants, Inc. Compensation Plan for Non-Employee Directors, as amended as of July 26, 2002. * 10(h) Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended (incorporated by reference to Exhibit 10(h) to our Annual Report on Form 10-K for the fiscal year ended May 28, 2000). * 10(i) Benefits Trust Agreement dated as of October 3, 1995, between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as Trustee (incorporated herein by reference to Exhibit 10(i) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997). 16 * 10(j) Form of Management Continuity Agreement, as amended, between us and certain of our executive officers (incorporated herein by reference to Exhibit 10(j) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997). * 10(k) Form of documents for our Fiscal 1998 Stock Purchase/Option Award program, including a Non-Negotiable Promissory Note and a Stock Pledge Agreement (incorporated herein by reference to Exhibit 10(k) to our Annual Report on Form 10-K for the fiscal year ended May 27, 2001). * 10(l) Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000, as amended as of July 26, 2002. 12 Computation of Ratio of Consolidated Earnings to Fixed Charges. 13 Portions of 2002 Annual Report to Shareholders. 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent. 24 Powers of Attorney. 99(a) Statement under oath of Principal Executive Officer regarding facts and circumstances relating to Exchange Act filings, dated August 19, 2002; 99(b) Statement under oath of Principal Financial Officer regarding facts and circumstances relating to Exchange Act filings, dated August 19, 2002; 99(c) Written statement of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 19, 2002. 99(d) Written statement of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 19, 2002. * Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K. We will furnish copies of any exhibit listed above upon request upon the payment of a reasonable fee to cover our expenses in furnishing such exhibit. (b) Reports on Form 8-K. During the last quarter covered by this report, we filed the following current reports on Form 8-K: (i) Current report on Form 8-K dated March 4, 2002, reporting the sale of $150,000,000 in Medium Term Notes. (ii) Current report on Form 8-K dated March 21, 2002, reporting certain financial results for the third quarter of fiscal 2002 and announcing a 3-for-2 stock split. (iii)Current report on Form 8-K dated March 26, 2002, announcing new leadership structure. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 19, 2002 DARDEN RESTAURANTS, INC. By: /s/ Joe R. Lee --------------------------------- Joe R. Lee Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date /s/ Joe R. Lee Director, Chairman of the Board and Chief August 19, 2002 - ------------------------------- Joe R. Lee Executive Officer (Principal executive officer) /s/ Clarence Otis, Jr. Executive Vice President and Chief Financial Officer August 19, 2002 - ------------------------------- Clarence Otis, Jr. (Principal financial and accounting officer) /s/ Bradley D. Blum* Director - ------------------------------- Bradley D. Blum /s/ Leonard L. Berry* Director - ------------------------------- Leonard L. Berry /s/ Odie C. Donald* Director - ------------------------------- Odie C. Donald /s/ Julius Erving, II* Director Julius Erving, II /s/ David H. Hughes* Director - ------------------------------- David H. Hughes /s/ Cornelius McGillicuddy, III* ** Director - ------------------------------------ Cornelius McGillicuddy, III /s/ Richard E. Rivera* Director - ------------------------------- Richard E. Rivera /s/ Michael D. Rose* Director - ------------------------------- Michael D. Rose /s/ Maria A. Sastre* Director - ------------------------------- Maria A. Sastre /s/ Jack A. Smith* Director - ------------------------------- Jack A. Smith 18 /s/ Blaine Sweatt, III* Director Blaine Sweatt, III /s/ Rita P. Wilson* Director - ------------------------------- Rita P. Wilson
*BY: /s/ Paula J. Shives --------------------------- Paula J. Shives, Attorney-In-Fact August 19, 2002 ** Popularly known as Senator Connie Mack, III. Senator Mack signs legal documents, including this Form 10-K, under his legal name of Cornelius McGillicuddy, III. 19 EXHIBIT INDEX Exhibit Number Title 3(a) Articles of Incorporation (incorporated herein by reference to Exhibit 3(a) to our Registration Statement on Form 10 effective May 5, 1995). 3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to our Registration Statement on Form 10 effective May 5, 1995). 4(a) Rights Agreement dated as of May 28, 1995 between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as amended May 23, 1996, assigned to Wachovia Bank, National Association (formerly known as First Union National Bank), as Rights Agent, as of September 29, 1997 (incorporated by reference to Exhibit 4(a) to our Annual Report on Form 10-K for the fiscal year ended May 31, 1998). 4(b) Indenture dated as of January 1, 1996, between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as Trustee (incorporated herein by reference to our Current Report on Form 8-K filed February 9, 1996). * 10(a) Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995, as amended as of July 26, 2002. * 10(b) Darden Restaurants, Inc. FlexComp Plan as amended as of July 26, 2002. * 10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to our Annual Report on Form 10-K for the fiscal year ended May 26, 1996). * 10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to our Registration Statement on Form 10 effective May 5, 1995). * 10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to our Registration Statement on Form 10 effective May 5, 1995). * 10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended as of July 26, 2002. * 10(g) Darden Restaurants, Inc. Compensation Plan for Non-Employee Directors, as amended as of July 26, 2002. * 10(h) Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended (incorporated by reference to Exhibit 10(h) to our Annual Report on Form 10-K for the fiscal year ended May 28, 2000). * 10(i) Benefits Trust Agreement dated as of October 3, 1995, between us and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, N.A.), as Trustee (incorporated herein by reference to Exhibit 10(i) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997). * 10(j) Form of Management Continuity Agreement, as amended, between us and certain of our executive officers (incorporated herein by reference to Exhibit 10(j) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997). * 10(k) Form of documents for our Fiscal 1998 Stock Purchase/Option Award program, including a Non-Negotiable Promissory Note and a Stock Pledge Agreement (incorporated herein by reference to Exhibit 10(k) to our Annual Report on Form 10-K for the fiscal year ended May 27, 2001). *10(l) Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000, as amended as of July 26, 2002. 12 Computation of Ratio of Consolidated Earnings to Fixed Charges. 13 Portions of 2002 Annual Report to Shareholders. 21 Subsidiaries of Darden Restaurants, Inc. 23 Independent Accountants' Consent. 24 Powers of Attorney. 99(a) Statement under oath of Principal Executive Officer regarding facts and circumstances relating to Exchange Act filings, dated August 19, 2002; 99(b) Statement under oath of Principal Financial Officer regarding facts and circumstances relating to Exchange Act filings, dated August 19, 2002; 99(c) Written statement of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 19, 2002. 99(d) Written Statement of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 19, 2002. - ------------------------ * Items marked with an asterisk are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14 of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K. EX-10 4 exhibit10afy02.txt EXHIBIT10A STOCK OPTION & LONG-TERM INCENT. PLAN EXHIBIT 10(a) DARDEN RESTAURANTS, INC. STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995 (AMENDED AND RESTATED AS OF JULY 26, 2002) 1. PURPOSE OF THE PLAN The purpose of the Darden Restaurants, Inc. Amended and Restated Stock Option and Long-Term Incentive Plan of 1995 (the "Plan") is to attract and retain able employees by rewarding employees of Darden Restaurants, Inc., its subsidiaries and affiliates (defined as entities in which Darden Restaurants, Inc. owns an equity interest of 25% or more) (collectively, the "Company") who are responsible for the growth and sound development of the business of the Company, and to align the interests of all employees with those of the stockholders of the Company and to compensate certain management employees of the Company by granting stock options in lieu of salary increases or other compensation or employee benefits. 2. EFFECTIVE DATE, DURATION AND SUMMARY OF PLAN A. Effective Date and Duration This Plan shall become effective as of the effective date of the distribution of Darden Restaurants, Inc. Common Stock to the holders of General Mills, Inc. common stock. Awards may be made under the Plan until September 30, 2004. B. Summary of Option Provisions for Participants The stock option that will be awarded to employees under this Plan gives a right to an employee to purchase at a future date shares of Darden Restaurants, Inc. Common Stock at a fixed price. As an employee, you will receive an "option agreement" in your own name, which will contain the term and other conditions of the option grant. In general, each option agreement will state the number of shares of Darden Restaurants, Inc. Common Stock that you can purchase from the Company, the price at which you can purchase the shares, and the last date you can make your purchase. You will not have any taxable income when you receive the option agreement. The price at which you may buy the Darden Restaurants, Inc. shares will be equal to the market price of the Company shares on the New York Stock Exchange as of the day the option was awarded to you. If after the period that you must hold the option before you can exercise such option the price of Darden Restaurants, Inc. Common Stock has risen, you will be able to make a gain on exercising the option equal to the difference between the exercise price of the option and the market price of Darden Restaurants, Inc. shares on the date you use your option to buy shares under the terms of the option certificate. This gain will be taxable to you at the time of exercise, unless deferred in accordance with the provisions of the option agreement. You will never be obligated to buy shares of the Company if you do not wish to do so. After the required holding period before you can exercise the option, you can continue to hold the option as an employee for the remaining years of the option before making the decision whether or not to buy shares of the Company. Thereafter, the rights under the option will lapse and cannot be used by the employee. Generally you cannot sell or assign the option to any other person and the specific provisions which cover your rights in the option are covered in the full text of the Plan. 1 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised solely of non-employee, independent members of the Board of Directors (the "Board") appointed in accordance with the Company's Articles of Incorporation. Subject to the express provisions of the Plan and applicable law, the Committee shall have authority to: (i) adopt rules and regulations for carrying out the purpose of the Plan; (ii) select the employees to whom Awards will be made ("Participants"); (iii) determine the number of shares to be awarded and the other terms and conditions of Awards in accordance with the Plan provisions; (iv) amend the terms and conditions of any Award or agreement relating to any Award, provided, however, that, except as otherwise provided in Section 4 hereof, the Committee shall not reprice, adjust or amend the exercise price of Stock Options previously awarded to any Participant, whether through amendment, cancellation and replacement grant, or any other means; (v) determine whether, to what extent and under what circumstances cash, Common Stock and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder of the Award or the Committee; and (vi) interpret, construe and implement the provisions of the Plan; provided that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), so permits, without adversely affecting the ability of the Plan to comply with the conditions for exemption from Section 16 of the 1934 Act (or any successor provisions) provided by Rule 16b-3, the Committee may delegate its duties under the Plan in whole or in part, on such terms and conditions, to the Chief Executive Officer and to other senior officers of the Company; provided further, that only the Committee may select and make other decisions as to Awards to Participants who are subject to Section 16 of the 1934 Act and to other executives of the Company. The Committee (or its permitted delegate) may correct any defect or supply any omission or reconcile any inconsistency in any agreement relating to any Award under the Plan in the manner and to the extent it deems necessary. Decisions of the Committee (or its permitted delegate) shall be final, conclusive and binding upon all parties, including the Company, stockholders and Participants. 4. COMMON STOCK SUBJECT TO THE PLAN The shares of common stock of the Company (without par value) ("Common Stock") to be issued upon exercise of a Stock Option, awarded as Restricted Stock, or issued upon expiration of the restricted period for Restricted Stock Units, may be made available from the authorized but unissued Common Stock, shares of Common Stock held in the Company's treasury, or Common Stock purchased by the Company on the open market or otherwise. Approval of the Plan by the sole shareholder of the Company shall constitute authorization to use such shares for the Plan. The Committee, in its discretion, may require as a condition to the grant of Stock Options, Restricted Stock or Restricted Stock Units (collectively, "Awards"), the deposit of Common Stock owned by the Participant receiving such grant, and the forfeiture of such Awards, if such deposit is not made or maintained during the required holding period or the applicable restricted period. Such shares of deposited Common Stock may not be otherwise sold, pledged or disposed of during the applicable holding period or restricted period. The Committee may also determine whether any shares issued upon exercise of a Stock Option shall be restricted in any manner. The maximum aggregate number of shares of Common Stock authorized under the Plan for which Awards may be granted under the Plan is 33,300,000. Upon the expiration, forfeiture, termination or cancellation, in whole or in part, of unexercised Stock Options, or forfeiture of Restricted Stock or Restricted Stock Units on which no dividends or dividend equivalents have been paid, the shares of Common Stock subject thereto shall again be available for Awards under the Plan. The number of shares subject to the Plan, the outstanding Awards and the exercise price per share of outstanding Stock Options may be appropriately adjusted by the Committee in the event that: (i) the number of outstanding shares of Common Stock shall be changed by reason of split-ups, spin-offs, combinations or reclassifications of shares; (ii) any stock dividends are distributed to the holders of Common Stock; 2 (iii)the Common Stock is converted into or exchanged for other shares as a result of any merger or consolidation (including a sale of assets) or other recapitalization, or other similar events occur which affect the value of the Common Stock; or (iv)the Committee determines such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. 5. ELIGIBLE PERSONS Only persons who are employees of the Company shall be eligible to receive Awards under the Plan ("Participants"). No Award shall be made to any member of the Committee or any other non-employee director of the Company. 6. PURCHASE PRICE OF STOCK OPTIONS The purchase price for each share of Common Stock issuable under a Stock Option shall not be less than 100% of the Fair Market Value of the shares of Common Stock on the date of grant. "Fair Market Value" as used in the Plan shall equal the mean of the high and low price of the Common Stock on the New York Stock Exchange on the applicable date. 7. STOCK OPTION TERM AND TYPE The term of any Stock Option as determined by the Committee shall not exceed 10 years from the date of grant and shall expire as of the close of business on the last day of the designated term, unless terminated earlier under the provisions of the Plan. All Stock Option grants under the Plan shall be non-qualified stock options governed by Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"). 8. EXERCISE OF STOCK OPTIONS A. Of the 33,300,000 shares of Common Stock authorized for issuance hereunder, not less than 4,500,000 shall be issued only as salary replacement Stock Options ("SRO's") in lieu of salary increases, compensation or other employee benefits, subject that SRO's granted to directors pursuant to the Stock Plan for Directors (as amended) shall also be included within such 4,500,000 shares of Common Stock. Except as provided in Sections 12 and 13, each Stock Option issued as an SRO may be exercised as determined by the Committee in its discretion. B. Except as provided in Sections 12 and 13 (Change of Control and Termination of Employment), each Stock Option, other than an SRO, may be exercised from the date of grant no sooner than in increments of one-third after two years, one-third after three years and one-third after four years, subject to the Participant's continued employment with the Company and in accordance with other terms and conditions prescribed by the Committee which may specify a longer period before an option may be exercised. C. The number of shares of Common Stock subject to Stock Options, excluding SRO's, granted under the Plan to any single Participant shall not exceed 450,000 shares in each of the last four fiscal years of the Plan determined on a prospective and retroactive cumulative basis. D. A Participant exercising a Stock Option shall give notice to the Company of such exercise and of the number of shares elected to be purchased prior to 5:00 P.M. EST/EDT on the day of exercise, which must be a business day at the executive offices of the Company. At the time of purchase, the Participant shall tender the full purchase price of the shares purchased. Until such payment has been made and a certificate or certificates for the shares purchased has been issued in the Participant's name, the Participant shall possess no stockholder rights with respect to such shares. Payment of such purchase price shall be made to the Company, subject to any applicable rule or regulation adopted by the Committee: 3 (i) in cash (including check, draft, money order or wire transfer made payable to the order of the Company); (ii) through the delivery of shares of Common Stock owned by the Participant; or (iii) by a combination of (i) and (ii) above. For determining the amount of the payment, Common Stock delivered pursuant to (ii) or (iii) shall have a value equal to the Fair Market Value of the Common Stock on the date of exercise. E. The Committee may permit a Participant to elect to defer receipt of all or a portion of the shares of Common Stock issuable upon exercise of a Stock Option, all on such terms and conditions as the Committee shall determine (including through the terms of the FlexComp Plan). 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS With respect to Awards of Restricted Stock and Restricted Stock Units, the Committee shall: (i) select Participants to whom Awards will be made, provided that Restricted Stock Units may only be awarded to those employees of the Company who are employed in a country other than the United States; (ii) determine the number of shares of Restricted Stock or the number of Restricted Stock Units to be awarded; (iii)determine the length of the restricted period, which shall be no less than one year, provided, however, that effective for Restricted Stock granted on or after June 1, 2000, the restricted period may be accelerated to less than one year based on performance goals established by the Committee; (iv)determine the purchase price, if any, to be paid by the Participant for Restricted Stock or Restricted Stock Units; and (v) determine any restrictions other than those set forth in this Section 9. Any shares of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of stock certificates, and may be held in escrow. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. Each Participant who receives Restricted Stock Units shall be eligible to receive, at the expiration of the applicable restricted period, one share of Common Stock for each Restricted Stock Unit awarded, and the Company shall issue to and register in the name of each such Participant a certificate for that number of shares of Common Stock. Participants who receive Restricted Stock Units shall have no rights as stockholders with respect to such Restricted Stock Units until such time as share certificates for Common Stock are issued to the Participants; provided, however, that quarterly during the applicable restricted period for all Restricted Stock Units awarded hereunder, the Company shall pay to each such Participant an amount equal to the sum of all dividends and other distributions paid by the Company during the prior quarter on that equivalent number of shares of Common Stock. Subject to the provisions of Section 12, for awards of Restricted Stock or Restricted Stock Units which have a deposit requirement, a Participant will be eligible to vest only in those shares of Restricted Stock or Restricted Stock Units for which personally-owned shares are on deposit with the Company as of the date the Participant's employment with the Company terminates. 4 The Committee may permit a Participant to elect to transfer shares of Restricted Stock to the Company in exchange for a deferred compensation right or Restricted Stock Units or elect to defer receipt of all or a portion of the shares of Common Stock subject to Restricted Stock Units, all on such terms and conditions as the Committee shall determine (including through the terms of the FlexComp Plan). The total number of shares of Common Stock issued upon vesting of Restricted Stock or Restricted Stock Units granted under the Plan shall not exceed 2,250,000 of the total number of shares of Common Stock which may be issued under this Plan, and no single Participant shall receive under the Plan Restricted Stock or Restricted Stock Units which, upon vesting, would exceed 2% of the total number of shares of Common Stock which may be issued under the Plan. 10. NON-TRANSFERABILITY Except as otherwise provided in Section 9, no shares of Restricted Stock and no Restricted Stock Units shall be sold, exchanged, transferred, pledged, or otherwise disposed of during the restricted period. No Stock Options granted under this Plan shall be transferable by a Participant otherwise than (i) by the Participant's last will and testament or (ii) by the applicable laws of descent and distribution, or (iii) by gift by a Participant who is subject to Section 16 of the 1934 Act and is eligible for retirement (age 55 with 10 years of service) to a "family member" defined by the Committee. Such Stock Options shall be exercised during the Participant's lifetime only by the Participant or his or her guardian or legal representative or the donee family member. After death, such Stock Option may be exercised in accordance with Section 13B. Other than as set forth herein, no Award under the Plan shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. 11. WITHHOLDING TAXES It shall be a condition to the obligation of the Company to deliver shares upon the exercise of a Stock Option, the vesting of Restricted Stock or Restricted Stock Units and the corresponding issuance of shares of unrestricted Common Stock, that the Participant pay to the Company cash in an amount equal to all federal, state, local and foreign withholding taxes required to be collected in respect thereof. Notwithstanding the foregoing, to the extent permitted by law and pursuant to such rules as the Committee may adopt, a Participant may authorize the Company to satisfy any such withholding requirement by directing the Company to withhold from any shares of Common Stock to be issued, all or a portion of such number of shares as shall be sufficient to satisfy the withholding obligation. 12. CHANGE OF CONTROL Each outstanding Stock Option shall become immediately and fully exercisable for a period of 6 months following the date of the following occurrences, each constituting a "Change of Control": (i) if any person (including a group as defined in Section 13(d)(3) of the 1934 Act) becomes, directly or indirectly, the beneficial owner of 20% or more of the shares of the Company entitled to vote for the election of directors; (ii) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event cease to constitute a majority of the Company's Board of Directors; or (iii)the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. After such 6-month period the normal option exercise provisions of the Plan shall govern. In the event a Participant is terminated as an employee of the Company within 2 years after any of the events specified in (i), 5 (ii) or (iii), his or her outstanding Stock Options at that date of termination shall become immediately exercisable for a period of 3 months. With respect to Stock Option grants outstanding as of the date of any such Change of Control which require the deposit of owned Common Stock as a condition to obtaining rights: (a) said deposit requirement shall be terminated as of the date of the Change of Control and any such deposited stock shall be promptly returned to the Participant; and (b) any restrictions on the sale of shares issued in respect of any such Stock Option shall lapse. In the event of a Change of Control, a Participant shall vest in all shares of Restricted Stock and Restricted Stock Units, effective as of the date of such Change of Control, and any deposited shares of Common Stock shall be promptly returned to the Participant. 13. TERMINATION OF EMPLOYMENT A. Termination of Employment If the Participant's employment by the Company terminates for any reason other than as specified herein or in subsections B, C or D, the Participant's Stock Options shall terminate 3 months after such termination and all shares of Restricted Stock and all Restricted Stock Units which are subject to restriction as of said termination date shall be forfeited by the Participant to the Company. In the event a Participant's employment with the Company is terminated for the convenience of the Company, as determined by the Committee, the Committee, in its sole discretion, may vest such Participant in all or any portion of outstanding Stock Options (which shall become exercisable) and/or shares of Restricted Stock or Restricted Stock Units awarded to such Participant, effective as of the date of such termination. In addition, and notwithstanding the foregoing provisions of this Section 13A, effective for Stock Options granted on or after March 21, 2001, if a Participant's employment with the Company is terminated for the convenience of the Company and for reasons other than cause (as determined by the Committee), and the Participant's combined age and years of service with the Company equal at least 70 at the time of such termination, then the Participant's Stock Options that would have vested within two years from the date of termination shall vest and become immediately exercisable, and shall expire on the earlier of (i) the expiration date of such Stock Options, or (ii) two years following the termination of employment. B. Death If a Participant should die while employed by the Company, any Stock Option previously granted under this Plan may be exercised (i) by the person (which may include any individual, corporation, partnership, association or trust) designated in such Participant's last will and testament or, (ii) in the absence of such designation, by the Participant's estate, or (iii) by the donee of a Stock Option made pursuant to Section 10 (iii), to the full extent that such Stock Option could have been exercised by such Participant immediately prior to death. Further, with respect to outstanding Stock Option grants which, as of the date of death, are not yet exercisable, any such option grant shall vest and become exercisable in a pro-rata amount, based on the full months of employment completed during the full vesting period of the Stock Option from the date of grant to the date of death. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining exercise rights, in the event a Participant should die while employed by the Company, said Stock Options may be exercised as provided in the first paragraph of this Section 13B, subject to the following special conditions: (i) any restrictions on the sale of shares issued in respect of any such Stock Option shall cease; and (ii) any owned Common Stock deposited by the Participant pursuant to said grant shall be promptly returned to the person (which may include any individual, corporation, partnership, association or 6 trust) designated in such Participant's last will and testament or, in the absence of such designation, to the Participant's estate, and all requirements regarding deposit by the Participant shall be terminated. A Participant who dies during any applicable restricted period shall vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date of death. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of death, as a percentage of the applicable restricted period. C. Retirement The Committee shall determine, at the time of grant, the treatment of the Stock Option upon the retirement of the Participant. Unless other terms are specified in the original Stock Option grant, and except for Stock Options granted on or after March 21, 2001, if the termination of employment is due to a Participant's retirement on or after age 55 with 10 years of service with the Company, the Participant may exercise a Stock Option, subject to the original terms and conditions of the Stock Option. With respect to Stock Option grants which require the deposit of owned Common Stock as a condition to obtaining rights, any restrictions on the sale of shares issued in respect of any such Stock Option shall lapse at the date of any such retirement. Effective for Stock Options granted on or after March 21, 2001, if a Participant retires on or after reaching age 55 with 10 years of service with the Company, then upon such retirement, such Stock Options shall fully vest and become immediately exercisable and retain the same Expiration Date as determined at the time of grant. A Participant shall be fully vested in all shares of Restricted Stock or Restricted Stock Units upon attainment of age 65 (unless any such award specifically provides otherwise). A Participant who takes early retirement (after age 55 with 10 years of service with the Company, but prior to age 65) during any applicable restricted period may elect either of the following alternatives with respect to Restricted Stock or Restricted Stock Units (unless any such award specifically provides otherwise): (a) Leave owned shares on deposit with the Company and vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the earlier of the date the Participant attains age 65 or the termination date of the applicable restricted period; or (b) Withdraw owned shares and vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date the shares on deposit are withdrawn. Such proportionate vesting shall be pro-rata, based on the number of full months of employment completed during the restricted period prior to the date of early retirement, as a percentage of the applicable restricted period. D. Spin-offs If the termination of employment is due to the cessation, transfer, or spin-off of a complete line of business of the Company, the Committee, in its sole discretion, shall determine the treatment of all outstanding Awards under the Plan. E. Non-Competition Effective for Stock Options granted on or after June 21, 1999, recipients of such Stock Options shall not, for a period of two years following termination of their employment with the Company for any reason whatsoever (including retirement), directly or indirectly, (i) own, manage or operate, be employed by, or render consulting, advisory or other services to, any enterprise, corporation or business that owns or operates casual dining restaurants, anywhere in the United States or Canada (a "Competitor"), or (ii) solicit or induce any person who is an employee of the Company to own, manage or operate, be employed by, or render consulting, advisory or other services to, a Competitor. Notwithstanding anything to the contrary contained in paragraphs A through D of this Section 13, upon violation by a Participant of the non-compete provisions of this paragraph E, all of such Participant's outstanding Stock Options will expire on the earlier 7 of (i) the expiration date of the Stock Options, or (ii) three months following the date of employment with a Competitor or other prohibited competitive action. 14. AMENDMENTS OF THE PLAN The Plan may be terminated, modified, or amended by the Board of Directors of the Company. The Committee may from time to time prescribe, amend and rescind rules and regulations relating to the Plan. Subject to the approval of the Board of Directors, the Committee may at any time terminate, modify, or suspend the operation of the Plan, provided that no action shall be taken by the Board of Directors or the Committee without the approval of the stockholders of the Company which would: (i) materially increase the number of shares which may be issued under the Plan; (ii) materially increase the benefits accruing to Participants under the Plan; or (iii)materially modify the requirements as to eligibility for participating in the Plan. The Board of Directors shall have authority to cause the Company to take any action related to the Plan which may be required to comply with the provisions of the Securities Act of 1933, as amended, the 1934 Act, and the rules and regulations prescribed by the Securities and Exchange Commission. Any such action shall be at the expense of the Company. No termination, modification, suspension, or amendment of the Plan shall alter or impair the rights of any Participant pursuant to a prior Award without the consent of the Participant. There is no obligation for uniformity of treatment of Participants under the Plan. 15. FOREIGN JURISDICTIONS The Committee may adopt, amend, and terminate such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws of any foreign jurisdiction, to employees of the Company who are subject to such laws and who receive Awards under the Plan. 16. NOTICE All notices to the Company regarding the Plan shall be in writing, effective as of actual receipt by the Company, and shall be sent to: Darden Restaurants, Inc. 5900 Lake Ellenor Dr. Orlando, FL 32809 Attn: General Counsel 8 EX-10 5 exhibit10bfy02.txt EXHIBIT 10B FLEXCOMP PLAN EXHIBIT 10(b) DARDEN RESTAURANTS, INC. FLEXCOMP PLAN As Amended and Restated Including amendments through July 26, 2002 DARDEN RESTAURANTS, INC. FLEXCOMP PLAN ARTICLE I INTRODUCTION Section 1.1 Purpose of Plan. Darden Restaurants, Inc. (formerly known as "General Mills Restaurants, Inc.") hereby adopts the Darden Restaurants, Inc. FlexComp Plan (the "Plan") for a select group of the key management and highly compensated employees of the Company as a means of providing bonus income and a method for sheltering a portion of an eligible individual's income from current taxation by providing (i) current bonus income (referred to herein as "FlexComp Awards") on an annual basis and providing a means by which an eligible individual may elect to defer the payment of all or a portion of his or her FlexComp Award for a period of one or more years, and (ii) a means by which an eligible individual may elect to defer the payment of all or a portion of his or her salary and/or applicable bonus (in addition to his FlexComp Awards) for a period of one or more years. In addition, this Plan is intended to be a successor Plan with respect to certain liabilities on behalf of certain individuals who had deferred compensation accounts under the General Mills Restaurants, Inc. FlexComp Plan, the General Mills, Inc. Deferred Compensation Plan and/or the Supplemental Savings Plan of General Mills, Inc. immediately prior to the Effective Date, which liabilities were transferred to this Plan as a result of the spin-off of General Mills Restaurants, Inc. from General Mills, Inc. Section 1.2 Effective Date of Plan. This Plan is a successor plan to the plans named below as of the Effective Date. This Plan was amended, effective January 1, 1996, to allow for the deferral of salary and bonuses with respect to eligible individuals. The original effective date of the predecessor plans, from which liabilities are transferred to this Plan, are as follows: (a) The original effective date of the General Mills Restaurants, Inc. FlexComp Plan was June 1, 1994; (b) The original effective date of the General Mills, Inc. Deferred Compensation Plan was May 1, 1984; and (c) The original effective date of the Supplemental Savings Plan of General Mills, Inc. was July 25, 1983. The Plan has been amended from time to time from its original effective date. This amendment and restatement includes all amendments through July 26, 2002. 1 ARTICLE II DEFINITIONS Section 2.1 Code shall mean the Internal Revenue Code of 1986, as amended from time to time. Section 2.2 Committee shall mean the Minor Amendment Committee of the Board of Directors of the Company or its delegate or the Compensation Committee of the Board of Directors with respect to any determination that is made with respect to a Participant who is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Section 2.3 Company shall mean Darden Restaurants, Inc. and any of its subsidiaries or affiliated business entities as shall be authorized to participate in the Plan by the Board, or its delegate. Section 2.4 Current Compensation shall be determined solely for the period during which the Participant was ineligible to accrue benefits under the Retirement Plan or the Retirement Income Plan of General Mills, Inc. and shall mean the "Earnable Compensation" that would have been recognized under the Retirement Plan for such Participant for such period, without regard to any limitations on compensation imposed under the Code. Notwithstanding the preceding sentence, the following special rules shall apply in determining Current Compensation: (a) Any annual incentive compensation that is based on fiscal year performance shall be considered Current Compensation for the Plan Year in which it accrues, and any incentive compensation that is not based on fiscal year performance shall be considered Current Compensation for the Plan Year in which paid. (b) In the case of a Participant who is totally and permanently disabled and who is receiving long-term disability benefits from an LTD Plan, Current Compensation shall include "hypothetical earnings" based on the greater of (1) the Participant's base salary rate at the time the disability occurred, or (2) the Participant's eligible earnings for the calendar year immediately prior to the onset of the disability, but shall not include "hypothetical earnings" for any period after the earlier of (A) the date the Participant attains age 65, or (B) the date the Participant is no longer eligible to receive benefits under an LTD Plan. (c) Current Compensation shall not include any amounts paid pursuant to a severance plan or arrangement or a special service allowance. (d) Any amounts attributable to sign-on bonuses or special project bonuses shall not be considered Current Compensation for purposes of determining the amount of any FlexComp Award (although such amounts shall be included for determining 2 an individual's compensation for purposes of Section 3.3(c), whether or not deferred). (e) Current Compensation shall not include amounts paid prior to the date of a Participant's first anniversary of employment, unless such Participant was hired prior to November 1, 1994. Section 2.5 Deferred Comp Participant shall mean a Participant who is eligible under Section 3.3 to defer all or a portion of his or her compensation (including salary and/or bonuses) as described in Section 4.4. Section 2.6 DSP shall mean the Darden Savings Plan (formerly the "Profit Sharing and Savings Plan for Darden Restaurants, Inc.). Section 2.7 Effective Date shall mean May 29, 1995. Section 2.8 FlexComp Award Participant shall mean a Participant who is eligible under Section 3.2 for a FlexComp Award under Section 4.1 and deferral of that award under Section 4.3. Section 2.9 Management Incentive Plan shall mean the plan adopted by Darden Restaurants, Inc. for key management employees. Section 2.10 Minor Amendment Committee shall mean the Minor Amendment Committee, appointed by the Board of Directors of Darden Restaurants, Inc. Section 2.11 Participant shall mean any employee of the Company who meets the eligibility requirements for a deferral under this Plan as set forth in Article III. Section 2.12 Plan Year shall mean the twelve-month period ending each May 31. Section 2.13 Retirement Plan shall mean the Retirement Income Plan of Darden Restaurants, Inc. (formerly the "Pension Plan for Salaried Employees of General Mills Restaurants, Inc."). Section 2.14 Supplemental Savings Plan shall mean the Supplemental Savings Plan of General Mills, Inc., under which certain employees of General Mills, Inc. or one of its affiliates had an account balance as of the Effective Date, which liabilities were transferred to this Plan as of the Effective Date, or, with respect to individuals who became employees of the Company after the Effective Date, but before the one-year anniversary of the Effective Date, on said one-year anniversary of the Effective Date. 3 ARTICLE III ELIGIBILITY FOR AWARDS AND DEFERRALS Section 3.1 Participation. An individual shall be a Participant in this Plan only if he or she satisfies any of the eligibility criteria set forth in Section 3.2 or Section 3.3. Upon becoming a Participant under Section 3.2 or Section 3.3, such an individual shall be permitted to participate solely for the deferral and award provisions of this Plan for which he or she has satisfied the eligibility criteria. Notwithstanding the foregoing, in no event may a Participant defer any amounts under this Plan during a period when the individual is receiving any amounts paid pursuant to a severance plan or arrangement or a special service allowance maintained by the Company. Section 3.2 FlexComp Award Participants. An individual who has completed one year of service with the Company (including service with General Mills, Inc. prior to the Effective Date) shall be eligible to become a FlexComp Award Participant in the FlexComp Award feature of this Plan (including the deferral of such Award) for a Plan Year, if such individual: (a) is designated as eligible to participate hereunder by the Minor Amendment Committee (or its designee) or by the Compensation Committee if such individual is subject to Section 16 of the Exchange Act; (b) is a highly compensated employee (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) under the DSP and the Retirement Plan for the DSP and Retirement Plan plan years that occur within the Plan Year or was a highly compensated employee during the preceding two plan years of the DSP and the Retirement Plan or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)); (c) is either employed by the Company or receiving benefits under a long-term disability income plan of the Company ("LTD Plan") on or after June 1, 1994; (d) is not an active participant in the Retirement Plan, the DSP, or any other tax-qualified retirement plan sponsored or maintained by the Company; and (e) would be entitled to accrue benefits under the Retirement Plan and be entitled to have contributions made under the DSP (or, if the individual is receiving benefits from an LTD Plan, would be entitled to accrue benefits under the Retirement Plan) if such plans did not have restrictions on participation by highly compensated employees or employees whose annualized salary as of his date of hire exceeds $80,000 (as adjusted). 4 Notwithstanding the foregoing provisions of Section 3.2(b), effective May 1, 1999, the rule in the DSP and Retirement Plan automatically excluding an employee from participation therein for two plan years after a plan year in which such employee is a highly compensated employee shall not apply with respect to Qualified Managers as defined in the DSP. Therefore, in lieu of Section 3.2(b), such individuals shall be eligible to become a FlexComp Award Participant in the FlexComp Award feature of this Plan (including the deferral of such Award) for a Plan Year, if such individual otherwise meets the requirements of Section 3.2(a), (c), (d), and (e) and such individual is a highly compensated employee, as defined therein for the current DSP and Retirement Plan plan years or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)). Section 3.3 Deferred Comp Participants. Effective January 1, 1996, an individual shall be eligible to become a Deferred Comp Participant in the deferred compensation features of this Plan (other than those deferral features applicable to FlexComp Awards) for any Plan Year, if he or she: (a) is an officer; (b) is a highly compensated employee (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) under the DSP and the Retirement Plan for the DSP and Retirement Plan plan years that occur within the Plan Year or was a highly compensated employee during the preceding two plan years of the DSP and the Retirement Plan or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)); or (c) after having become eligible under (a) or (b) above for a prior Plan Year, the individual would have been a highly compensated employee under the DSP or the Retirement Plan for the DSP or Retirement Plan plan year ending within the Plan's Plan Year (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) had the individual's compensation included all amounts that the individual deferred under this Plan other than deferrals, if any, of the FlexComp Awards. Notwithstanding the foregoing provisions of Section 3.3(b), effective May 1, 1999, the rule in the DSP and Retirement Plan automatically excluding an employee from participation therein for two plan years after a plan year in which such employee is a highly compensated employee shall not apply with respect to Qualified Managers as defined in the DSP. Therefore, in lieu of Section 3.3(b), such individuals shall be eligible to become a Deferred Comp Participant in the deferred compensation features of this Plan (other than those deferral features applicable to FlexComp Awards) for any Plan Year, if he or she otherwise meets the requirements of Section 3.3(a) or (c) or such individual is a highly compensated employee, as defined therein for the DSP and Retirement Plan plan years that occur within the Plan Year or is 5 employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)). 6 ARTICLE IV FLEXCOMP AWARDS AND PLAN DEFERRALS Section 4.1 Payment of Annual FlexComp Award. A FlexComp Award Participant who: (i) as of the last day of a Plan Year, is actively employed by the Company or receiving benefits under an LTD Plan; or (ii) terminates employment during a Plan Year due to "retirement" (as that term is defined under the Retirement Plan) or death, shall be paid any FlexComp Award that he or she may become entitled to receive for the Plan Year (as determined under Section 4.2) in cash as soon as practicable following the end of such Plan Year. A FlexComp Award Participant who terminates during a Plan Year for any reason other than "retirement" (as defined under the Retirement Plan) or death shall be paid any FlexComp Award that he or she may become entitled to receive for the Plan Year in cash as soon as practicable after the end of the Plan Year following his or her termination of employment. Section 4.2 Amount of Annual FlexComp Award. A FlexComp Award Participant shall be entitled to an annual FlexComp Award, the amount of which shall be determined as follows: (a) The formula for determining the FlexComp Award set forth in (b) or (c) below shall apply to all FlexComp Award Participants, as follows: (1) FlexComp Award Participants who are hired on or after June 1, 2000 shall have their FlexComp Award amounts determined under (b) below. (2) FlexComp Award Participants who were actively employed (including those on an authorized leave of absence) FlexComp Award Participants during the Plan Year beginning June 1, 2000 and who, in accordance with such procedures established by the Committee made a one-time irrevocable election prior to the date established by the Committee, to have their FlexComp Awards determined under the formula set forth in (b) or (c) below for all Plan Years beginning on and after June 1, 2000 shall have their FlexComp Awards determined in accordance with that affirmative election. In the absence of an affirmative election to the contrary, such Participant's FlexComp Award for all Plan Years beginning on and after June 1, 2000 shall be determined under the formula set forth in (b) below. (3) FlexComp Award Participants who were actively employed before June 1, 2000, were not eligible for the election as described in (a)(2) above even though they were actively employed at such time, became eligible to participate as a FlexComp Award Participant without having incurred a break in service from the Company (whether or not such participation was for the first time), and participate in the final average pay portion of the Retirement Plan shall be provided with a one-time irrevocable election to 7 choose whether to have the FlexComp Award determined under (b) or (c) below. Such irrevocable election shall be made upon becoming a FlexComp Award Participant at such time and in accordance with such procedures established by the Committee. In the absence of a timely affirmative election, the Participant's FlexComp Award shall be determined under (b) below. (4) FlexComp Award Participants not otherwise described in (1), (2) or (3) above (including, by way of illustration and not limitation, FlexComp Award Participants who terminated employment prior to June 1, 2000 and are re-hired after that date), shall have their FlexComp Awards determined under the formula described in (b) below for all relevant Plan Years beginning on and after June 1, 2000. (5) In all events, the formula described in (c) below shall apply in determining the amount of all annual FlexComp Awards for periods before June 1, 2000. (b) If this Section 4.2(b) applies to a FlexComp Award Participant (as determined under (a) above), the amount of a FlexComp Award for any such Participant shall be determined under the following formula: [ "X" (a DSP factor) plus "Y" (a fixed factor)] times the Participant's Current Compensation. The determination of the appropriate factors and the relevant terms are set forth below: (1) X, the DSP factor, is based on the Participant's lost DSP matching contributions, and, equals: (A) a variable amount,determined in the Company's discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 6% for periods on and after June 1, 2000, and before July 1, 2002; and (B) a variable amount, determined in the Company's discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 7.2%for periods on and after July 1, 2002. (2) Y, the fixed factor, is 4%. (3) In the event a Participant terminates employment with the Company during the Plan Year for any reason other than "retirement" (as defined under the Retirement Plan) or death, the Participant shall be entitled to a FlexComp Award for the portion of the Plan Year in which he or she is employed, based on his or her Current Compensation for the partial Plan Year. 8 (c) If this Section 4.2(c) applies to a FlexComp Award Participant (as determined under (a) above), the amount of a FlexComp Award for any such Participant shall be determined under the following formula: ["X" (a DSP factor) plus the product of "Y" (an age-based factor) and "Z" (a service-based factor)] times the Participant's Current Compensation. The determination of the appropriate factors and the definitions of the relevant terms are set forth below: (1) X, the DSP factor, is based on the Participant's lost DSP matching contributions, and, equals: (A) 3% for periods before October 1, 1997; (B) a variable amount, determined in the Company's discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 6% for periods on and after October 1, 1997 and before July 1, 2002; and (C) a variable amount, determined in the Company's discretion, but which percentage shall be applied consistently to all such participants, between 1.5% and 7.2% for periods on and after July 1, 2002. (2) Y, the age-based factor is 1.085^ (the Participant's age minus 30), with the Participant's age being determined as of the last day of the Plan Year, unless the Participant terminates during the Plan Year for any reason other than "retirement" (as defined under the Retirement Plan) or death, in which case the Participant's age shall be determined as of his or her date of termination. (3) Z, the service-based factor is equal to 1.8 + (.02 x the Participant's years of credited service under the Retirement Plan (including years of service credited under the Pension Plan for Hourly Employees of General Mills Restaurants, Inc., if such service would have been included under the portability provisions of the Retirement Plan had the Participant been an active participant in the Retirement Plan at the time of the FlexComp Award) and under the Retirement Income Plan of General Mills, Inc. during periods when the Participant was entitled to accrue benefits thereunder before first becoming eligible to participate in this Plan). (4) The product of Y and Z shall not be less than 2%, or greater than 20%. (5) In the event a Participant terminates employment with the Company during the Plan Year for any reason other than "retirement" (as defined under the Retirement Plan) or death, the Participant shall be entitled to a 9 FlexComp Award for the portion of the Plan Year in which he or she is employed, based on his or her Current Compensation for the partial Plan Year. Section 4.3 Deferral of Annual FlexComp Award. Notwithstanding Section 4.1, any FlexComp Award Participant may elect to defer up to 100% (in a whole percentage) of any FlexComp Award that he or she may become entitled to receive for a Plan Year. Any such election shall apply to the specified percentage of the Participant's FlexComp Award for the Plan Year, provided the Participant completes and submits to the Company a deferral election form no later than the December 31 within such Plan Year. If a Participant will first become eligible to participate in the FlexComp Plan after December 31 of a Plan Year but prior to the end of such Plan Year, such Participant may make a deferral election conditioned on the granting of a FlexComp Award for such Plan Year (a "Conditional Election"), if made prior to December 31st of that Plan Year. Such Conditional Election shall apply to the FlexComp Award, if any, made to the Participant for such Plan Year. The Participant's deferral percentage election shall remain in effect with respect to any FlexComp Awards for future Plan Years, until the Participant changes such election by completing and submitting to the Company a new deferral election form on or before any subsequent December 31. Any such new election shall apply to the specified percentage of the Participant's FlexComp Award for the Plan Year in which such December 31 falls and for future Plan Years until the Participant next changes his or her election. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant's FlexComp Award reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any FlexComp Award, then any deferral election made with respect to such FlexComp Award shall not become effective. Section 4.4 Salary, Incentive, and Bonus Deferral Elections. (a) Elections by Officers. A Deferred Comp Participant who is an officer of the Company may make the following deferral elections: (1) Base Compensation. Such Participant may make an initial election to defer up to 15% (in a whole percentage) of his or her base compensation by completing and submitting to the Company a deferral election form at such time and in such manner as determined by the Compensation Committee. Such election shall apply to the Participant's base compensation attributable to services performed after the election and before the beginning of the next calendar year. That initial deferral election shall continue to apply with respect to all future base compensation until the election is changed by the Participant. The Participant may elect to modify any deferral election of base compensation for the remainder of any calendar year or any future year by providing written notice to the Company at such time and in such manner as determined by the Compensation Committee. Any such change shall be 10 effective as soon as practicable after the end of the week following the week after the Company's receipt of the Participant's written notice of change. (2) Management Incentive Plan Bonus Deferral. Such Participant may elect to defer up to 100% (in a whole percentage) of his or her Management Incentive Plan incentive compensation by completing and submitting to the Company a deferral election form no later than the sixtieth (60th) day preceding the end of the Company's fiscal year. Such deferral election shall apply to all future Management Incentive Plan incentive compensation payments until changed for a future Plan Year by the Participant in writing. A Participant may elect to change his or her deferral election of incentive compensation by providing written notice to the Company no later than the sixtieth (60th) day immediately preceding the Company's fiscal year for which such incentive compensation would otherwise be payable. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant's incentive compensation reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any incentive compensation award, then any deferral election made with respect to such incentive compensation award shall not become effective. (b) Elections by All Other Participants. A Deferred Comp Participant who is not an officer of the Company may make the following deferral elections: (1) Deferrals of Earnable Compensation. Such Participant may elect to defer up to 15% (in a whole percentage) of his or her "earnable compensation" (as such term is defined under the DSP) by completing and submitting to the Company a deferral election form at such time and in such manner as determined by the Minor Amendment Committee (or its delegate). Such election shall apply to the Participant's "earnable compensation" attributable to services performed after the election and shall remain in effect until changed by the Participant. A Participant may change his or her deferral election of earnable compensation for any future period by providing written notice to the Company on such forms as prescribed by the Minor Amendment Committee or its delegate. Any such change shall be effective as soon as practicable after the end of the week following the week after the Company's receipt of the Participant's written notice. (2) Bonus for Operations. Such Participant may elect to defer up to 15% (in a whole percentage) of his or her operations bonus by completing and submitting to the Company a deferral election form no later than the forty-fifth (45th) day preceding the end of the applicable bonus period. Such 11 deferral election shall apply to all future operations bonuses until changed by the Participant in writing. A Participant may elect to change his or her deferral election of future operations bonuses by providing written notice to the Company no later than the forty-fifth (45th) day preceding the end of the next applicable bonus period. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant's operations bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of an operations bonus, then any deferral election made with respect to such bonus shall not become effective. (3) Management Incentive Plan Bonus. Such Participant may elect to defer up to 15% (in a whole percentage) of his or her Management Incentive Plan bonus, provided the Participant completes and submits to the Company a deferral election form no later than the sixtieth (60th) day preceding the end of the applicable bonus period. Such deferral election shall apply to all future Management Incentive Plan bonuses until changed by the Participant in writing. A Participant may elect to change his or her deferral election of future Management Incentive Plan bonuses by providing written notice to the Company no later than the sixtieth (60th) day preceding the end of the next applicable Plan Year. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant's Management Incentive Plan bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of a Management Incentive Plan bonus, then any deferral election made with respect to such bonus shall not become effective. (c) Special Bonuses. Effective with respect to bonuses awarded on or after January 1, 1996, any Deferred Comp Participant may elect to defer up to 100% (in a whole percentage) of: (i) any "sign-on bonus" that may become payable to such Participant by completing and submitting to the Company a deferral election form no later than his or her date of hire, and (ii) any "special project bonus" that the Senior Vice President of Personnel, in his or her sole discretion, (or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act) may award to such Participant by completing and submitting to the Company a deferral election form within 30 days of receiving from the Company a written communication regarding the goals and objectives that must be attained in order to earn such special project bonus. Notwithstanding the foregoing, the amount of any deferral under this subsection may not exceed the gross amount of the applicable bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or 12 local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of a sign-on or special project bonus, then any deferral election made with respect to such bonus shall not become effective. (d) Bridge Period Benefit Amount and Restricted Stock Amount. In addition to the deferral elections under subsections (a), (b) and (c), a Deferred Comp Participant may elect to defer an amount of his or her base compensation for calendar years 1998 and 1999, which amount is equivalent to a specified percentage (in a whole percentage) of his or her "Bridge Period Benefit Amount," provided, however, that such election shall not be effective for base compensation earned prior to September 1, 1998. The Participant's Bridge Period Benefit Amount shall equal (i) the taxable amounts paid to the Participant under the Darden Restaurants, Inc. Bridge Period Benefit Plan and the Darden Restaurants, Inc. Bridge Period Retirement Plan, plus (ii) the amounts realized by the Participant on his or her exercise of all or any portion of the Stock Option granted under such plans prior to December 31, 1999. In addition, a Participant may elect to defer an amount of his or her: (i) base compensation and Management Incentive Plan incentive compensation award if the Participant is an officer of the Company, (ii) earnable compensation, operations bonus and Management Incentive Plan incentive compensation award if the Participant is not an officer of the Company, and/or (iii) special bonuses, which amount is equivalent to a specified percentage (in a whole percentage) of his or her "Restricted Stock Amount." The Participant's Restricted Stock Amount shall equal the value of the Participant's restricted stock that vests in the year such base compensation, incentive compensation, earnable compensation, or bonus is earned. Any such election under this subsection (d) shall be made by completing and submitting to the Company a deferral election form that shall apply to base compensation or earnable compensation that would otherwise be payable at least 30 days after such form is submitted to the Company and to incentive compensation and operations and special bonuses that are not determinable prior to at least 30 days after such form is submitted to the Company, pursuant to rules established by the Company. A Participant may change his or her deferral election of base compensation, earnable compensation and/or incentive compensation (including operations and special bonuses) under this subsection (d) by providing written notice to the Company. Any such change shall apply to base compensation or earnable compensation that would otherwise be payable as soon as practicable after the end of the week following the week after the Company's receipt of the Participant's written notice and to incentive compensation (including operations and special bonuses) that is not determinable prior to at least 30 days after the Company receives the Participant's written notice, pursuant to rules established by the Company. Notwithstanding the foregoing, the amount of any deferral under this subsection (d) may not exceed the gross amount of the Bridge Period Benefit Amount and/or Restricted Stock Amount reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, 13 notwithstanding any prior deferral election, if the Participant terminates prior to the effective date of any deferral under this Section 4.3(d), then any deferral election made shall not become effective. Section 4.5 Short-Term Deferrals. Notwithstanding the foregoing provisions of this Article IV, the Company may permit a Participant to elect to defer all or part of the Participant's incentive compensation award, if any, to a date certain selected by the Company within the taxable year it would otherwise be paid, upon written notice to the Company received by December 31 of the preceding calendar year. Interest shall be credited on such deferred amount at a rate selected by the Company and shall be communicated to the Participant at the same time the availability of any such short-term deferral opportunity is communicated to Participants. 14 ARTICLE V ESTABLISHMENT OF ACCOUNTS AND CREDITS TO ACCOUNTS Section 5.1 Deferred Accounts and Rates of Return on Deferred Accounts. A deferred compensation account ("Deferred Account") shall be established on behalf of each Participant with respect to whom an amount is deferred under Section 4.4 of this Plan, including amounts transferred in accordance with Appendix A. The amount of a Participant's deferrals under this Plan shall be credited to such Participant's Deferred Account as soon as practicable after the amount would otherwise have been paid in the absence of the deferral election. Effective January 1, 1998, each Participant's Deferred Account shall be credited daily with a "rate of return" on the total deferred amounts credited to the Participant's Deferred Account and a Participant may make separate elections with respect to "rates of return" for past and future deferrals. Such "rates of return" are described in Section 5.3. Section 5.2 FlexComp Accounts and Rates of Return on Amounts in FlexComp Accounts. A deferred FlexComp Award account ("FlexComp Account") shall be established on behalf of each Participant who elects to defer a percentage of his or her FlexComp Awards. The amount of a Participant's deferred FlexComp Awards shall be credited to such Participant's FlexComp Account as soon as practicable after the amount would otherwise have been paid in the absence of a deferral election. Effective January 1, 1998, each Participant's FlexComp Account shall be credited daily with a "rate of return" on the total deferred amounts credited to the Participant's FlexComp Account and a Participant may make separate elections with respect to "rates of return" for past and future deferrals. Such "rates of return" are described in Section 5.3. Section 5.3 Rates of Return. The "rates of return" credited to a Participant's accounts under Sections 5.1 and 5.2 shall be based upon the actual investment performance of funds in the DSP, or at such other rates as may be made available to the Participant from time to time pursuant to the provisions of the Plan and the procedures established by the Committee. The Committee may delete funds, on a prospective basis, by notifying all Participants whose Accounts include rates of return based on such funds, in advance, and soliciting elections for transfer to other rates of return then available to such Participants. Participants may elect to have any combination of the above "rates of return" accrue on amounts in their accounts, from 1% to 100%, provided that the sum of the percentages attributable to such rates equals 100%. A Participant may change the "rate(s) of return" to be credited to his or her accounts, on a daily basis, by notifying the Committee or its delegate, at such time and in such manner as approved by the Committee or its delegate. Effective January 1, 1998, each Participant's accounts will be credited daily with the "rate(s) of return" elected by the Participant until the amount in each Participant's Accounts is distributed to the Participant on the distribution date(s) elected by the Participant. Each Participant shall receive a quarterly statement of the balance of his or her accounts. 15 Section 5.4 Impact on Other Benefit Plans. The Company may maintain life and/or disability plans under which benefits earned or payable are related to a Participant's earnings. Any such benefits will generally be based upon the earnings that a Participant would have earned in a given calendar year in the absence of any deferral hereunder. 16 ARTICLE VI PAYMENT OF ACCOUNTS Section 6.1 Hardship Distributions. At any time prior to the time an amount is otherwise payable hereunder, an active Participant may request a distribution of deferred amounts on account of the Participant's financial hardship, subject to the following requirements: (a) Such distribution shall be made, in the sole discretion of the Minor Amendment Committee or its delegate or by the Compensation Committee if the Participant is subject to Section 16 of the Exchange Act, if the Participant has incurred an unforeseeable emergency. (b) For purposes of this plan, an "unforeseeable emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a Participant's dependent (as defined in Code section 152(a)), loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case and be based on the information supplied by the Participant, in writing, on the form provided by the Minor Amendment Committee or its delegate. (c) Notwithstanding the foregoing, payment under this Section 6.1 may not be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. In addition to the foregoing, distributions under this Section 6.1 shall not be allowed for purposes of sending a child to college or the Participant's desire to purchase a home or other residence. In all events, distributions made on account of an unforeseeable emergency are limited to the extent reasonably needed to satisfy the emergency need. (d) All distributions under this Section 6.1 shall be made as soon as practicable after the Minor Amendment Committee or its delegate or the Compensation 17 Committee, as applicable, has approved the distribution and that the requirements of this Section 6.1 have been met. Section 6.2 Payment of Deferred Amounts. At the time a Participant makes his or her election to defer any amounts under this Plan, the Participant must also elect a distribution date and a form of payment with respect to the deferral of each of the amounts subject to any such election, in accordance with subsections (a) and (b) and subject to subsection (c) below. A Participant who has a Supplemental Savings Account transferred to this Plan pursuant to Appendix A shall also elect a distribution date and form of payment with respect to his or her Supplemental Savings Account, in accordance with subsections (a) and (b) and subject to subsection (c) below. Each deferred amount under this Plan is paid separately according to the Participant's deferred distribution date election. Notwithstanding any Participant election to the contrary, all distributions under this Plan shall be paid or commence to be paid as soon as practicable after the January 1 coincident with or next following the Participant's termination of employment or retirement from the Company. (a) Distribution Date. The distribution date may be any date that is at least one year subsequent to the date the compensation, bonus, FlexComp Award or the Supplemental Savings Account (whichever is applicable) would otherwise be payable, but shall not be later than the date the Participant attains age 70. (b) Form of Payment. The Participant may elect to have his or her deferred amounts subject to such election, paid in: (1) a single payment, (2) substantially equal annual installments for a period not to exceed ten (10) years, (3) substantially equal annual installments for a period not to exceed fifteen (15) years for deferral elections made prior to December 31, 1985 (if so elected at the time of the original deferral), or (4) any other form of payment requested in writing by the Participant and approved by the Minor Amendment Committee or its delegate or by the Compensation Committee if the Participant is subject to Section 16 of the Exchange Act, with regard to amounts deferred under Article IV. (c) Special Rules. Notwithstanding the above, the following provisions shall apply: (1) Except as provided in Subsection 7.2(c)(3), if a Participant terminates employment for any reason other than Retirement or death, the Committee or its delegate shall require that full payment of all amounts deferred under this Plan be paid in the form of a single lump sum cash payment as soon as 18 practicable after the January 1 coincident with or next following the Participant's termination of employment. (2) As to all future and previous deferrals, an active Participant may request to amend his or her distribution date and/or form of payment with respect to a deferral provided: (i) the initial distribution date in the absence of such distribution election amendment is not within twelve (12) months of the date of the amendment; (ii) his or her amended distribution date is at least one year after the distribution date in the absence of such distribution election amendment; (iii) his or her amended form of payment is in substantially equal annual installments for a period not to exceed ten (10) years or a lump sum; and (iv) no modifications for distribution dates and/or forms of payment are permitted with respect to any deferrals after payment of such deferrals has commenced to be paid. No more than two amendments to the Participant's initial distribution election with respect to a particular deferral shall be permitted. Any such amendment must be in writing and submitted to the Committee for approval. (3) Notwithstanding any other provision of this Plan to the contrary, a Participant may, at any time prior or subsequent to the distribution date selected by the Participant, request in writing to the Committee to have his or her form of payment of any or all amounts in his or her FlexComp Account, Deferred Compensation Account, and/or Supplemental Savings Account changed to an immediate lump-sum distribution, provided that the amount of any such lump-sum distribution shall be reduced by an amount equal to the product of (X) the total lump-sum distribution otherwise payable (based on the value of the Participant's FlexComp Account, Deferred Compensation Account, or Supplemental Savings Account, as the case may be) as of the first day of the month in which the lump-sum amount is paid, adjusted by a pro-rata portion of the rate of return for the prior month in which the lump-sum is paid, determined by multiplying the actual rate of return for such prior month by a fraction, the numerator of which is the number of days in the month in which the request is received prior to the date of payment, and the denominator of which is the number of days in the month), and (Y) the rate set forth in Statistical Release H.15(519), or any successor publication, as published by the Board of Governors of the Federal Reserve System for one-year U.S. Treasury notes under the heading "Treasury Constant Maturities" for the first day of the calendar month in which the written request for an immediate lump-sum distribution is approved by the Committee. Any such lump sum distribution shall be paid within one (1) business day of approval by the Committee of such request. Section 6.3 Death of a Participant. If a Participant dies before the full distribution of his or her accounts under this Article VI, a lump sum payment of the remaining distribution 19 amount shall be made to the beneficiary designated by the Participant. This payment shall be made as soon as practicable after the Committee receives notification of the Participant's death. In the absence of any such designation, payment shall be made to the personal representative, executor or administrator of the Participant's estate. 20 ARTICLE VII ADMINISTRATION OF THE PLAN Section 7.1 Committee. This Plan shall be administered by the Committee. The Committee shall act by affirmative vote of a majority of its members at a meeting or in writing without a meeting. The Committee shall appoint a secretary who may be but need not be one of its own members. The secretary shall keep complete records of the administration of the Plan. The Committee may authorize each and any one of its members to perform routine acts and to sign documents on its behalf. Section 7.2 Plan Administration. The Committee may appoint such persons or establish such subcommittees, employ such attorneys, agents, accountants or investment advisors necessary or desirable to advise or assist it in the performance of its duties hereunder, and the Committee may rely upon their respective written opinions or certifications. Administration of the Plan shall consist of interpreting and carrying out the provisions of the Plan in the discretion of the Committee. The Committee shall, in its discretion, determine the eligibility of employees to participate in the different features of the Plan, their rights while Participants in the Plan and the nature and amounts of benefits to be received therefrom. The Committee shall, in its discretion, decide any disputes which may arise under the Plan. The Committee may provide rules and regulations for the administration of the Plan consistent with its terms and provisions. Any construction or interpretation of the Plan and any determination of fact in administering the Plan made in good faith by the Committee shall be final and conclusive for all Plan purposes. Section 7.3 Claims Procedure. (a) The Minor Amendment Committee or its delegate shall prescribe a form for the presentation of claims under the terms of this Plan. (b) Upon presentation to the Minor Amendment Committee or its delegate of a claim on the prescribed form, the Minor Amendment Committee or its delegate shall make a determination of the validity thereof. If the determination is adverse to the claimant, the Minor Amendment Committee or its delegate shall furnish to the claimant within a reasonable period of time after the receipt of the claim a written notice setting forth the following: (1) The specific reason or reasons for the denial; (2) Specific reference to pertinent provisions of this Plan on which the denial is based; (3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and 21 (4) An explanation of this Plan's claim review procedure. (c) If a claim is denied, the claimant may appeal such denial to the Minor Amendment Committee or its delegate for a full and fair review of the adverse determination. The claimant's request for review must be in writing and be made to the Minor Amendment Committee or its delegate within 60 days after receipt by the claimant of the written notification required under subsection (b) above. The claimant or his or her duly authorized representative may submit issues and comments in writing which shall be given full consideration by the Minor Amendment Committee or its delegate in its review. (d) The Minor Amendment Committee or its delegate may, in its sole discretion, conduct a hearing. A request for a hearing will be given full consideration. At such hearing, the claimant shall be entitled to appear and present evidence and be represented by counsel. (e) A decision on a request for review shall be made by the Minor Amendment Committee or its delegate not later than 60 days after receipt of the request; provided, however, in the event of a hearing or other special circumstances, such decision shall be made not later than 120 days after receipt of such request. (f) The Minor Amendment Committee's or its delegate's decision on review shall state in writing the specific reasons and references to this Plan provisions on which it is based. Such decision shall be immediately provided to the claimant. In the event the claimant disagrees with the findings of the Minor Amendment Committee or its delegate, the matter shall be referred to arbitration in accordance with Section 7.6 hereof. (g) The Minor Amendment Committee or its delegate may allocate its responsibilities among its several members, except that all matters involving the hearing of and decision on claims and the review of the determination of benefits shall be made by the full Minor Amendment Committee or its delegate. No member of the Minor Amendment Committee or its delegate shall participate in any matter relating solely to himself or herself. Section 7.4 Non-Assignability. The interests herein and the right to receive distributions from a Participant's accounts under this Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a Participant becomes bankrupt, the interests of the Participant under this Plan in his or her accounts may be terminated by the Minor Amendment Committee or its delegate (or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act), which, in its sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such Participant or make any other disposition of such interests that it deems appropriate. 22 Section 7.5 Amendments to Plan. Darden Restaurants, Inc. reserves the right to suspend, amend or otherwise modify or terminate this Plan at any time, without notice. Such action shall be taken by the Board of Directors of Darden Restaurants, Inc. However, this Plan may not be suspended, amended, otherwise modified, or terminated after a Change in Control without the written consent of a majority of Participants determined as of the day before such Change in Control occurs. A "Change in Control" shall mean the occurrence of any of the following events: (a) any person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the shares of Darden Restaurants, Inc. entitled to vote for the election of directors; (b) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sales of assets or contested election, or combination of the foregoing, the persons who were directors of Darden Restaurants, Inc. just before such event shall cease to constitute a majority of Darden Restaurants, Inc.'s Board of Directors; or (c) the shareholders of Darden Restaurants, Inc. approve an agreement providing for a transaction in which Darden Restaurants, Inc. will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of Darden Restaurants, Inc. occurs. Notwithstanding any other provision of this Plan to the contrary, the Minor Amendment Committee, or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act, may, in its sole discretion, direct that payments be made before such payments are otherwise due if, for any reason (including, but not limited to a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, or a decision by a court of competent jurisdiction involving a Participant or Beneficiary), such Committee believes that Participants or their Beneficiaries have recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to such Participants under this Plan before such amounts are scheduled to be paid. In making this determination, such Committee shall take into account the hardship that would be imposed on Participants or their Beneficiaries by the payment of federal income taxes under such circumstances. Section 7.6 Arbitration. Subject to the completion of the claims procedure described in Section 7.3, any controversy or claim arising out of or relating to this Plan, or any alleged breach of the terms or conditions contained herein, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") as such rules may be modified herein. 23 (a) An award rendered in connection with an arbitration pursuant to this Section 7.6 shall be final and binding and judgment upon such an award may be entered and enforced in any court of competent jurisdiction. (b) The forum for arbitration under this Plan shall be Orlando, Florida and the governing law for such arbitration shall be the laws of the State of Florida. (c) Arbitration under this Section 7.6 shall be conducted by a single arbitrator selected jointly by Darden Restaurants, Inc. and the Participant or Beneficiary, as applicable (the "Complainant"). If within thirty (30) days after a demand for arbitration is made, Darden Restaurants, Inc. and the Complainant are unable to agree on a single arbitrator, three arbitrators shall be appointed to conduct the arbitration. Each party shall select one arbitrator and those two arbitrators shall then select a third neutral arbitrator within thirty (30) days after their appointment. In connection with the selection of the third arbitrator, consideration shall be given to familiarity with executive compensation plans and experience in dispute resolution between parties, as a judge or otherwise. If the arbitrators selected by the parties cannot agree on the third arbitrator, they shall discuss the qualifications of such third arbitrator with the AAA before selection of such arbitrator, which selection shall be in accordance with the Commercial Arbitration Rules of the AAA. (d) If an arbitrator cannot continue to serve, a successor to an arbitrator selected by a party shall be also selected by the same party, and a successor to a neutral arbitrator shall be selected as specified in subsection (c) of this Section. A full rehearing will be held only if the neutral arbitrator is unable to continue to serve or if the remaining arbitrators unanimously agree that such a rehearing is appropriate. (e) The arbitrator or arbitrators shall be guided, but not bound, by the Federal Rules of Evidence and by the procedural rules, including discovery provisions, of the Federal Rules of Civil Procedure. Any discovery shall be limited to information directly relevant to the controversy or claim in arbitration. (f) The parties shall each be responsible for their own costs and expenses, except for the fees and expenses of the arbitrators, which shall be shared equally by Darden Restaurants, Inc. and the Complainant. Section 7.7 Plan Unfunded. Nothing in this Plan shall be interpreted or construed to require the Company in any manner to fund any obligation to the Participants, terminated Participants or beneficiaries hereunder. Nothing contained in this Plan nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligation under this Plan shall for all purposes continue to be a part of the general assets of the Company; provided, 24 however, that the Company may establish a trust to hold funds intended to provide benefits hereunder so long as the assets of such trust become subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. To the extent that any Participant, terminated Participant, or Beneficiary acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of any unsecured general creditor of the Company. Section 7.8 Applicable Law. All questions pertaining to the construction, validity and effect of this Plan shall be determined in accordance with the laws of the State of Florida, to the extent not preempted by Federal law. Section 7.9 Limitation of Rights. This Plan is a voluntary undertaking on the part of the Company. Neither the establishment of this Plan nor the payment of any benefits hereunder, nor any action of the Company, the Committee or the Minor Amendment Committee or its delegate shall be held or construed to be a contract of employment between the Company and any eligible employee or to confer upon any person any legal right to be continued in the employ of the Company. The Company expressly reserves the right to discharge, discipline or otherwise terminate the employment of any eligible employee at any time. Participation in this Plan gives no right or claim to any benefits beyond those which are expressly provided herein and all rights and claims hereunder are limited as set forth in this Plan. Section 7.10 Severability. In the event any provision of this Plan shall be held illegal or invalid, or would serve to invalidate this Plan, that provision shall be deemed to be null and void, and this Plan shall be construed as if it did not contain that provision. Section 7.11 Headings and Number. The headings to the Articles and Sections of this Plan are inserted for reference only, and are not to be taken as limiting or extending the provisions hereof. Section 7.12 Incapacity. If the Minor Amendment Committee or its delegate determines that a Participant, a terminated Participant, or any Beneficiary under this Plan (each of which shall be referred to as the "Recipient") is unable to care for his or her affairs because of illness, accident, or mental or physical incapacity, or because the Recipient is a minor, the Minor Amendment Committee or its delegate may direct that any benefit payment due the Recipient be paid to his or her duly appointed legal representative, or, if no such representative is appointed, to the Recipient's spouse, child, parent, or other blood relative, or to a person with whom the Recipient resides or who has incurred expense on behalf of the Recipient. Any such payment so made shall be a complete discharge of the liabilities of this Plan with respect to the Recipient. Section 7.13 Binding Effect and Release. All persons accepting benefits under this Plan shall be deemed to have consented to the terms of this Plan. Any final payment or distribution to any person entitled to benefits under this Plan shall be in full satisfaction of all claims against this Plan, the Committee, the Minor Amendment Committee or its delegate, and the Company arising by virtue of this Plan. 25 APPENDIX A SUPPLEMENTAL SAVINGS ACCOUNTS Eligibility for Supplemental Savings Account. An individual who was employed by the Company on the Distribution Date and who had an account balance under the terms of the Supplemental Savings Plan as of such date, shall have a Supplemental Savings Plan Account established hereunder to the extent such liability is transferred to this Plan as of the one-year anniversary of the Distribution Date. No Forfeitures of Supplemental Savings Account. All amounts credited to a Participant's Supplemental Savings Account under the Plan shall be fully vested. 26 DARDEN RESTAURANTS, INC. FLEXCOMP PLAN APPENDIX B STOCK OPTION GAIN AND RESTRICTED STOCK DEFERRALS Section 1 Purpose and Effect. This Appendix B authorizes the deferral of gains from the exercise of Stock Options and the deferral of income that would otherwise be recognized upon the lapse of restrictions applicable to Restricted Stock Awards notwithstanding any other provision in the Plan to the contrary. The Stock Options and Restricted Stock Awards that may be subject to deferral elections authorized by this Appendix B are limited to those made under the following stock plans of the Company (collectively, the "Stock Plans"): (a) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995; (b) Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000; (c) Darden Restaurants, Inc. 2002 Stock Incentive Plan; and (d) any future stock plan, agreement or arrangement of the Company that explicitly provides for such deferral elections. In accordance with the rules set forth in this Appendix B, eligible Participants may elect to (i) defer receipt of all or a portion of the shares of Common Stock representing the net gain on exercise of a Stock Option in connection with a Participant's stock-for-stock option exercise ("Option Deferral") and (ii) either not receive restricted shares of Common Stock that would have been issued under a Restricted Stock Award, or transfer to the Company prior to the applicable Vesting Date all or a portion of the shares of Common Stock received under a Restricted Stock Award, in exchange for the Company's agreement to pay deferred compensation in the form of unrestricted shares of Common Stock ("Restricted Stock Deferral"). Grants of Stock Options and Restricted Stock Awards are governed by the Stock Plans, as they may be amended from time to time. No stock options, restricted stock or shares of Common Stock are authorized to be issued under this Plan. Participants who elect to make a deferral in accordance with this Appendix B will have no rights as shareholders of the Company with respect to Stock Units credited to their Deferred Stock Unit Accounts. Section 2 Definitions. For purposes of this Appendix B, the terms defined in Article II of the Plan shall have the same meanings when used in this Appendix B, unless a different meaning is given in this Section 2. In addition, the terms listed below shall have the following meanings: 27 (a) Common Stock shall mean the common stock, without par value, of Darden Restaurants, Inc. (b) Compensation Committee shall mean the Compensation Committee of the Board of Directors of the Company. (c) Deferred Stock Unit Account shall mean the account established for each Participant in accordance with Section 7 of this Appendix B. (d) Exercise Date shall mean the date as of which a Stock Option is exercised under the applicable Stock Plan. (e) Net Shares shall mean: (i) with respect to any Option Deferral pursuant to Section 4 of this Appendix B, the number of shares of Common Stock subject to the deferral election ("Deferred Shares") as to which the Stock Option has been exercised, less the number of shares of Common Stock delivered to pay the exercise price for the Deferred Shares in a stock-for-stock exchange, and less any shares used to satisfy FICA, Medicare or any other taxes due at the time Stock Units are credited due to the Option Deferral; (ii) with respect to any Restricted Stock Deferral pursuant to Section 5 of this Appendix B, the number of shares of Common Stock issued pursuant to the Restricted Stock Award that are subject to the deferral election, less any shares that are used to satisfy FICA, Medicare or any other taxes due at the time Stock Units attributable to a Restricted Stock Deferral become vested; and (iii)with respect to any Restricted Stock Deferral pursuant to Section 6 of this Appendix B, the number of shares of Common Stock that are subject to the deferral election that would have been issued pursuant to the Restricted Stock Award, less any shares that are used to satisfy FICA, Medicare or any other taxes due at the time Stock Units attributable to a Restricted Stock Deferral become vested. (f) Participant shall mean a person who is eligible under Section 3 of this Appendix B to make an Option Deferral as described in Section 4 of this Appendix B or a Restricted Stock Deferral as described in either Section 5 or 6 of this Appendix B. A person who has become a Participant shall be considered to continue as a "Participant" in the Plan within the meaning of Article II of the Plan (even if such person subsequently becomes ineligible to make deferrals under this Appendix B) until the date of the Participant's death or, if earlier, the date when the Participant no longer satisfies the eligibility requirements in Section 3 of this Appendix B and 28 the Participant has received a distribution of all of the Participant's Deferred Stock Unit Account. (g) Restricted Stock Award shall mean any award of restricted Common Stock pursuant to one or more of the Company's Stock Plans. (h) Stock Option shall mean any nonqualified stock option granted pursuant to one or more of the Company's Stock Plans. (i) Stock Unit shall mean one of the units credited to Participants' Deferred Stock Unit Accounts based on the number of Net Shares. (j) Vesting Date shall mean the date on which the Participant's shares of Common Stock issued pursuant to a Restricted Stock Award would, absent a deferral election, become vested in accordance with the terms and conditions of the Restricted Stock Award. Section 3 Eligibility. A person shall be eligible to make deferrals pursuant to this Appendix B if he or she: (a) is an officer with a title of Vice President or above; or (b) has been designated by the Compensation Committee as eligible for participation in the deferral feature described in this Appendix B. The Compensation Committee may rescind such designation and discontinue such person's active participation in the deferral feature described in this Appendix B at any time. A person who ceases to be a person described in (a) or (b) above shall not be eligible to make any further deferral elections pursuant to this Appendix B, but any prior deferral elections made by such a person shall continue in effect. Section 4 Option Deferral. As of any date that is (i) at least six full months in advance of the applicable Exercise Date and (ii) at least six full months in advance of the date the applicable Stock Option expires, a Participant may complete and submit to the Company an irrevocable election to defer receipt of Net Shares of Common Stock resulting from a stock-for-stock exercise of an exercisable Stock Option granted to the Participant and to only pay for such exercise by tendering shares of Common Stock. Such deferral election shall specify the following: (a) the specific Stock Option grant and the number of shares of Common Stock subject to the deferral election; and (b) the Distribution Date and form of distribution, in accordance with the rules for payment under Article VI of the Plan, as modified by Section 8 below. 29 A Participant may make a deferral election with respect to all or only a portion of the shares of Common Stock subject to a Stock Option ("Option Shares"). The portion of a Stock Option subject to a deferral election may not be exercised until six full months after the deferral election is made and must be exercised separately from the remainder of the Stock Option. No partial exercise of the portion of a Stock Option subject to the deferral election shall be permitted. A Participant may not deliver cash in lieu of shares of Common Stock to satisfy the Stock Option exercise price for shares subject to a deferral election. All shares of Common Stock delivered to pay the exercise price must, on the Exercise Date, have been owned by the Participant without restriction for at least six full months. Section 5 Restricted Stock Deferral - Shares Not Subject to Accelerated Vesting Based on Performance. As of any date that is (i) at least 12 full months in advance of the applicable Vesting Date or (ii) at least nine full months in advance of the applicable Vesting Date if such election date occurs prior to May 25, 2003, an eligible Participant may complete and submit to the Company an irrevocable election to transfer to the Company all or a portion of the unvested shares of Common Stock subject to a Restricted Stock Award that does not provide for accelerated vesting based on any measure of personal performance (other than continued employment) or Company performance, and to be credited with a number of Stock Units equal to the number of Net Shares resulting from the deferral election. Such deferral election shall specify the following: (a) the specific Restricted Stock Award and number of shares of Common Stock to be transferred to the Company; and (b) the Distribution Date and form of distribution, in accordance with the rules for payment under Article VI of the Plan, as modified by Section 8 below. A Participant may make a deferral election with respect to all or only a portion of the shares of Common Stock subject to a Restricted Stock Award. If an election is made with respect to only a portion of such shares, the remainder will vest in accordance with the terms and conditions of the Restricted Stock Award. The transfer of shares to the Company shall take effect on the date as of which the deferral election is made. Section 6 Restricted Stock Deferral - Shares Subject to Accelerated Vesting Based on Performance. Prior to the date on which a Participant would be granted a Restricted Stock Award that provides for accelerated vesting based on any measure of personal performance (other than continued employment) or Company performance, an eligible Participant may complete and submit to the Company an irrevocable election not to receive restricted shares of Common Stock pursuant to that award, and to be credited instead with a number of Stock Units equal to the number of Net Shares resulting from the deferral election. Such deferral election shall specify the following: (a) the anticipated Restricted Stock Award; and 30 (b) the Distribution Date and form of distribution, in accordance with the rules for payment under Article VI of the Plan, as modified by Section 8 below. Any deferral election made pursuant to this Section 6 shall apply to all of the shares of Common Stock subject to the specified Restricted Stock Award. Section 7 Deferred Stock Unit Accounts. A Deferred Stock Unit Account shall be established on behalf of each Participant for Net Shares deferred under Section 4, 5 or 6 of this Appendix B. The provisions of this Section 7 shall be subject to the following rules: (a) For each Net Share deferred, a Stock Unit shall be credited to the Participant's Deferred Stock Unit Account effective as of (i) the applicable Exercise Date in the case of an Option Deferral pursuant to Section 4 above, (ii) the date of the deferral election in the case of a Restricted Stock Deferral pursuant to Section 5 above, or (iii) the date of the Restricted Stock Award in the case of a Restricted Stock Deferral pursuant to Section 6 above. (b) Stock Units credited on account of a Restricted Stock Deferral shall be subject to the same vesting restrictions that would have applied to the corresponding shares of restricted Common Stock if no Restricted Stock Deferral had been made. If the vesting restrictions applicable to a Stock Unit are not satisfied, the Stock Unit shall be forfeited. (c) On each payment date for cash dividends paid on the Company's Common Stock, the Company shall pay to each Participant a dividend equivalent amount equal to the cash dividend that would be payable by the Company on a number of shares of Common Stock equal to the number of Stock Units then credited to the Participant's Deferred Stock Unit Account. Such dividend equivalent amounts shall be paid directly to Participants in cash and shall not be eligible for deferral under this Plan. (d) In the event that the Compensation Committee determines that any dividend or other distribution (whether in the form of cash, Common Stock, securities of a subsidiary of the Company, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment to the Participants' allocations to their Deferred Stock Unit Accounts is appropriate to prevent the reduction or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee, may, in its sole discretion and in such manner as it may deem equitable, adjust the Stock Units credited to the Participants' Deferred Stock Unit Accounts. 31 Section 8 Payment of Deferred Amounts. The rules regarding payment of amounts under Article VI of the Plan shall apply to Deferred Stock Unit Accounts, except that (a) payment of Deferred Stock Unit Accounts shall be made only in the form of shares of Common Stock and not in cash, (b) payment with respect to Stock Units that are subject to vesting restrictions as provided in Section 7(b) above shall not occur prior to the time those vesting restrictions are satisfied; and (c) unless the Participant elects otherwise prior to the commencement of payment, the Company shall, to the extent permitted by law, withhold from the shares of Common Stock to be transferred to the Participant the number of shares sufficient to satisfy any tax withholding required at the time of payment. Any reduction in the amount payable required in order to receive an accelerated distribution pursuant to Section 6.2(c)(3) of the Plan shall be rounded up to the nearest whole share. Section 9 Forms and Procedure. Deferral elections made pursuant to this Appendix B must be made in writing on forms approved by the Compensation Committee, and shall be subject to such other procedural rules as the Compensation Committee may establish. Any determinations or approvals that must be made with respect to a Participant's Stock Units, including approval of any hardship distribution requested pursuant to Section 6.1 of the Plan or approval of any optional form of payment as permitted under Section 6.2(b)(2), shall be made by the Compensation Committee and not by the Minor Amendment Committee. Section 10 Effect on Stock Options and Restricted Stock Awards. Deferral elections made pursuant to this Appendix B shall constitute amendments to the Stock Options and Restricted Stock Awards to which the deferral elections apply. Any shares of Common Stock paid pursuant to this Appendix B on account of a Participant's deferral election shall be deemed issued under the Stock Plan under which the corresponding Stock Option or Restricted Stock Award was granted. 32 EX-10 6 exhibit10ffy02.txt EXHIBIT10F STOCK PLAN FOR DIRECTORS EXHIBIT 10(f) DARDEN RESTAURANTS, INC. STOCK PLAN FOR DIRECTORS (AMENDED AND RESTATED AS OF JULY 26, 2002) 1. Purpose. The purpose of the Darden Restaurants, Inc. Stock Plan (the "Plan") for Directors is to increase the proprietary interest of Directors in Darden Restaurants, Inc. (the "Company") by granting them non-qualified options to purchase Common Stock of the Company ("Common Stock") and shares of Common Stock subject to the restrictions described herein that will promote long-term shareholder value through ownership of Common Stock. 2. Administration. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company. Grants of options to purchase Common Stock under the Plan and the amount and nature of the awards of Common Stock shall be made automatically or by the Board of Directors as provided in Section 4. However, subject to the express provisions of the Plan and applicable law, the Compensation Committee shall have full authority to: (i) interpret the Plan; (ii) promulgate such rules and regulations with respect to the Plan as it deems desirable; (iii) amend the terms and conditions of any award or award agreement, provided, however, that, except as otherwise provided in Section 5 hereof, the Committee shall not reprice, adjust or amend the exercise price of options to purchase Common Stock of the Company previously awarded to any Director, whether through amendment, cancellation and replacement grant, or any other means; (iv) determine whether, to what extent and under what circumstances shares of Common Stock payable with respect to an award under the Plan shall be deferred either automatically or at the election of the holder of the award or the Committee; and (v) make all other determinations necessary or appropriate for the administration of the Plan, and such determinations shall be final and binding upon all persons having an interest in the Plan. 3. Participation. Each person who is a Director of the Company or any of its subsidiaries at the date of each grant or award shall be eligible to participate in the Plan. A "Director" for purposes of this Plan is defined as a person who has been elected to the Board of Directors of the Company and does not have an employee status with the Company. 4. Awards under the Plan. The number of shares of Common Stock authorized for grants under the Plan is 375,000, provided that all such shares shall be issued from Common Stock held in the Company's treasury. In addition, all shares of Common Stock authorized, but unissued under the predecessor Stock Plan for Directors effective May 28, 1995, as amended, shall be available and authorized for issuance under this Plan. If any shares of Common Stock covered by an award or to which an award relates are not purchased or are forfeited or otherwise reacquired by the Company (including shares of Restricted Stock, as described below, whether or not dividends have been paid on such shares), or if an award otherwise terminates or is cancelled without delivery of any shares of Common Stock, then the number of shares of Common Stock counted against the aggregate number of shares available under the Plan with respect to such award, to the extent of any such forfeiture, termination or cancellation, shall again be available for granting awards under the Plan. In addition, any shares of Common Stock that are used by a participant as full or partial payment to the Company of the purchase or exercise price relating to an award or in connection with the satisfaction of tax obligations relating to an award, and any shares of Common Stock purchased by the Company in the open market or in private transactions having an aggregate purchase price no greater than the amount of cash proceeds received by the Company from the exercise of Options, as described below, under the Plan shall be available for granting awards under the Plan. (a) Non-qualified Stock Options (i) Grant of Options. Each person who becomes a Director for the first time after the effective date of the Plan shall be awarded an option ("Option") to purchase 12,500 1 shares of Common Stock, effective as of the date such person becomes a Director. In addition, at the close of business on each annual shareholders' meeting, each Director elected or re-elected to the Board shall be granted an Option to purchase 3,000 shares of Common Stock. The written agreement evidencing such Options granted under the Plan shall be dated as of the applicable date of each grant. All Options granted under the Plan shall be non-qualified stock options governed by Section 83 of the Internal Revenue Code of 1986, as amended. (ii) Option Exercise Price. The per share price to be paid by the Director at the time an Option is exercised shall be 100% of the Fair Market Value of the Common Stock on the date of grant. "Fair Market Value" shall equal the mean of the high and low price for the Common Stock on the New York Stock Exchange on the relevant date or, if the New York Stock Exchange is closed on that date, on the last preceding date on which the Exchange was open for trading. (iii)Term of Option. Each Option shall expire ten (10) years from the date of grant. (iv) Exercise of Option. Options shall be exercisable only after one year from the date the Option is granted, except that (1) "SRO's" may be exercised after a period of six months or longer if so determined by the Board of Directors at the date of the grant of the SRO and (2) the 12,500 Options granted to a Director upon his or her first election to the Board of Directors shall be exercisable only after three years from the date the Options are granted. (v) Method of Exercise, Deferral and Tax Obligations. Each notice of exercise shall be accompanied by the full purchase price of the shares being purchased. Such payment may be made in cash, check, shares of Common Stock valued using the Fair Market Value as of the exercise date or a combination thereof. The Company may also require payment of the amount of any federal, state or local withholding tax attributable to the exercise of an Option or the delivery of shares of Common Stock upon lapse of the Restricted Period described below. The Committee may permit a Director to elect to defer receipt of all or a portion of the shares of Common Stock issuable upon exercise of an Option, all on such terms and conditions as the Committee shall determine (including through the terms of the Compensation Plan for Non-Employee Directors). (vi) Non-transferability. An Option shall be non-assignable and non-transferable by a Director other than by (1) the Director's last will and testament, or (2) the applicable laws of descent and distribution, or (3) by gift by a Director to a "family member" defined by the Compensation Committee. Such Option may be exercised only by such Director or his or her guardian or legal representative or the donee family member. A Director shall forfeit any Option assigned or transferred, voluntarily or involuntarily, other than as permitted under this subsection. (vii)Notwithstanding anything contained herein to the contrary, upon retirement of a Director or other cessation of service on the Board of Directors, the Director's Options will vest and be exercisable according to the following schedules. (1) For a Director with at least five years of Board service, including service on the predecessor General Mills, Inc. Board of Directors, unvested Options granted prior to September 1999 will continue to vest. Once vested, Options will be exercisable for the full term of the Option. (2) For a Director with less than five years of Board service, including service on the predecessor General Mills, Inc. Board of Directors, unvested Options will be forfeited. Options granted prior to September 1999 that have vested will be exercisable for the full Option term. Options granted beginning with and after 2 the September 1999 grant if vested, must be exercised within ninety days of the end of Board service or, otherwise, will be forfeited. (b) Restricted Stock. (i) Awards. Each Director on the effective date of the Plan shall be granted an award of 3,000 shares of Common Stock, restricted as described below ("Restricted Stock"). At the close of business on each successive annual stockholders' meeting date thereafter, each Director then elected or re-elected to the Board shall be granted an award of 3,000 shares of Restricted Stock. Notwithstanding the foregoing, prior to the date of each annual stockholders' meeting, with respect to any such award of Restricted Stock to be made for such upcoming year, a Director may elect (1) on such terms and conditions as the Committee shall determine (including through the terms of the Compensation Plan for Non-Employee Directors), to defer receipt of all or any portion of the Common Stock that would otherwise be received pursuant to his or her Restricted Stock award until a date that is on or after the cessation of Board service or (2) to receive the equivalent of 1,000 of the 3,000 shares of any Restricted Stock award in cash based on the Fair Market Value of the Common Stock on the date of such stockholders' meeting. Any such deferral election shall result in the Restricted Stock not being issued to the Director and, in exchange, the Director will be credited with stock units, representing the Company's obligation to pay deferred compensation at a later date in the form of unrestricted Common Stock, all on such terms and conditions as the Committee shall determine (including through the terms of the Compensation Plan for Non-Employee Directors). (ii) Restricted Period. The restrictions set forth shall apply from the date of each grant until the earlier of the following: (1) the last day on which the New York Stock Exchange is open for trading immediately prior to the annual stockholders meeting next succeeding the grant of such Restricted Stock, or (2) the Director's death or disability (the "Restricted Period"). Until the expiration of the Restricted Period, none of the Restricted Stock may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of, and all of the Restricted Stock shall be forfeited and all further rights of the Director to or with respect to such Restricted Stock shall terminate without any obligation on the part of the Company unless the Director has remained a Director throughout the Restricted Period applicable to such Restricted Stock. (iii)Other Terms and Conditions. Any shares of Restricted Stock granted hereunder may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of stock certificates, and may be held in escrow. If certificated, each such certificate shall bear a legend giving notice of the restrictions. Each Director must also endorse in blank and return to the Company a stock power for each grant of Restricted Stock. During the Restricted Period, each Director shall have all the rights and privileges of a shareholder with respect to the Restricted Stock, including the right to vote the shares and to receive dividends thereon. At the expiration of the Restricted Period, a stock certificate free of all restrictions for the number of shares of Restricted Stock so registered shall be delivered to the Director or his or her estate. (c) Stock Award. (i) Awards. At the close of business on the date of each annual stockholders' meeting occurring after July 26, 2002, in lieu of the award of Restricted Stock described in Section 4(b) above, each Director elected or re-elected to the Board at such stockholders' meeting shall be granted an award equal to that number of shares of Common Stock having a Fair Market Value on the date of grant equal to $100,000, rounded to the nearest whole share (the "Stock Award"). Each Director who, after July 26, 2002, is appointed as a Director of the Company at any time other than at an annual stockholders' meeting 3 shall be granted on the date of such appointment a prorated Stock Award equal to that number of shares of Common Stock, rounded to the nearest whole share, having a Fair Market Value on the date of grant equal to $100,000 multiplied by a fraction, the numerator of which is 365 minus the number of days in the period from the date of the annual stockholders' meeting immediately preceding such appointment to the date of such appointment and the denominator of which is 365. Notwithstanding the foregoing, prior to the date of each annual stockholders' meeting or the date of any such appointment, as the case may be, a Director may elect with respect to each such Stock Award to be granted on such date (1) on such terms and conditions as the Committee shall determine (including through the terms of the Compensation Plan for Non-Employee Directors), to defer receipt of all or any portion of the Common Stock that would otherwise be received pursuant to his or her Stock Award until a date that is on or after the cessation of Board service or (2) to receive 25% or 50% of the Stock Award in cash. Any such deferral election shall result in such shares of Common Stock not being issued to the Director and, in exchange, the Director will be credited with stock units, representing the Company's obligation to pay deferred compensation at a later date in the form of unrestricted Common Stock, all on such terms and conditions as the Committee shall determine (including through the terms of the Compensation Plan for Non-Employee Directors). (ii) Non-transferability. From the date of grant to the first anniversary of the date of grant of any Stock Award (the "Non-transferability Period"), none of the shares of Common Stock subject to the Stock Award may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of by a Director other than by (1) the Director's last will and testament, or (2) the applicable laws of descent and distribution. During the Non-transferability Period, any certificate representing shares of Common Stock that are subject to a Stock Award shall bear a legend giving notice of the restrictions described in this Section 4(c)(ii). During the Non-transferability Period, each Director shall have all the rights and privileges of a shareholder with respect to the shares of Common Stock subject to the Stock Award, including the right to vote such shares and to receive dividends thereon. (d) "SRO's". In addition to the awards described in Sections 4(a), (b) and (c) above, the Board of Directors also shall grant salary replacement options ("SRO's") to one or more of the Directors pursuant to the annual decision of each Director in lieu of all or part of an annual retainer or for directors fees for attendance at Board or Committee meetings or other compensation for services as a Director. Such grants shall be made on the last day of each fiscal quarter of the Company for compensation accrued during such quarter and be valued by the same formula as used by the Compensation Committee for awards of SRO's to employees of the Company. SRO's shall be treated as Options under this Plan for all other purposes. (e) Change of Control. The Options granted hereunder shall become exercisable and the restrictions on Restricted Stock and Stock Awards shall lapse upon the occurrence of a "Change of Control." Each of the following shall constitute a "Change of Control": (i) if any person (including a group as defined in Section 13(d)(3) of the 1934 Act) becomes, directly or indirectly, the beneficial owner of 20% or more of the shares of the Company entitled to vote for the election of directors; (ii) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the 4 foregoing, the persons who were Directors of the Company just prior to such event cease to constitute a majority of the Company's Board of Directors; or (iii)the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. 5. Adjustments. In the event of a stock dividend or stock split, or combination or other reduction in the number of issued shares of Common Stock, a merger, consolidation, reorganization, recapitalization, sale or exchange of substantially all assets or dissolution of the Company, or whenever the Committee determines such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then appropriate adjustments shall be made in the shares and number of shares of Common Stock subject to and authorized by this Plan and the number of shares of Common Stock subject to Options, Restricted Stock and Stock Awards previously granted hereunder and the exercise price of Options previously granted hereunder, in order to prevent dilution or enlargement of the rights of the Directors under the Plan. 6. Amendment of the Plan. The Board of Directors may suspend or terminate the Plan or any portion thereof at any time, and the Board of Directors may amend the Plan from time to time as may be deemed to be in the best interests of the Company; provided, however, that no such amendment, alteration or discontinuation shall be made (a) that would impair the rights of a Director with respect to Options, Restricted Stock or Stock Awards theretofore awarded, without such person's consent, or (b) without the approval of the stockholders, (i) if such approval is necessary to comply with any legal, tax or statutory requirement, including any approval requirement which is a prerequisite for exemptive relief from Section 16 of the Securities Exchange Act of 1934 (the "1934 Act") or (ii) would materially change the definition of persons eligible to receive awards under this Plan, or (c) unless such amendment is necessary to comply with changes in the Internal Revenue Code of 1986, as amended, or the Employment Retirement Income Security Act of 1974, as amended, or rules promulgated thereunder. 7. Miscellaneous Provisions. Neither the Plan nor any action taken hereunder shall be construed as giving any Director any right to be nominated for re-election to the Board. The Plan shall be governed by the laws of the state of Florida. 8. Effective Date and Duration of Plan. The Plan shall be deemed effective as of the effective date of the distribution of Common Stock to the holders of General Mills, Inc. Common Stock. No awards shall be made hereunder after September 30, 2005. 9. Section 16. With respect to persons subject to Section 16 of the 1934 Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 5 EX-10 7 exhibit10gfy02.txt EXHIBIT10G COMP PLAN FOR NON-EMPLOYEE DIRECTORS EXHIBIT 10(g) DARDEN RESTAURANTS, INC. COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS (AMENDED AND RESTATED AS OF JULY 26, 2002) PART I GENERAL PROVISIONS A. OBJECTIVE AND SUMMARY OF THE PLAN It is the intent of the Company to provide a compensation program for its non-employee directors which will attract and retain highly qualified individuals to serve in this capacity. This program shall be called the "Darden Restaurants, Inc. Compensation Plan for Non-Employee Directors" (hereinafter the "Plan"). "Compensation" shall mean the annual retainer and meeting fees for each regular or special Board of Directors meeting and any committee meeting attended. Such Compensation may be received in any combination of the following: 1. Cash 2. Deferred Cash 3. Darden Restaurants, Inc. Common Stock ("Common Stock") The combination of alternatives for each non-employee director shall equal the aggregate Compensation earned by each non-employee director. Such Compensation shall be distributed as outlined in Parts II, III, and IV hereof. B. ADMINISTRATION The Plan shall be administered by the Compensation Committee (hereinafter the "Committee") of the Board of Directors. The Committee shall have full authority and complete discretion to interpret the Plan, to promulgate such rules and regulations with respect to the Plan as it deems desirable and to make all other determinations necessary or appropriate for the administration of the Plan, and such determinations shall be final and binding upon all persons having an interest in the Plan. C. AWARDS UNDER THE PLAN The aggregate number of shares of Company Common Stock authorized to be issued under Parts III and IV hereof is 75,000, provided that all of such shares shall be issued from shares of Common Stock held in the Company's treasury. In addition, all shares of Common Stock authorized, but unissued under the predecessor Compensation Plan for Non-Employee Directors, effective May 28, 1995, as amended, shall be available and authorized for issuance under Part III or IV of this Plan. D. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall be deemed effective October 1, 2000. No awards shall be made hereunder after September 30, 2005. E. AMENDMENT OF THE PLAN The Board of Directors may suspend or terminate the Plan or any portion thereof at any time, and the Board of Directors may amend the Plan from time to time as may be deemed to be in the best interests of the Company; 1 provided, however, that no such amendment, suspension or termination shall be made (a) which would impair the rights of a non-employee director with respect to Compensation theretofore earned, without such person's consent, or (b) without the approval of the stockholders, which would materially increase the maximum number of shares subject to this Plan, materially increase the maximum number of shares issuable to any non-employee director under this Plan, or materially change the definition of persons eligible to receive awards under this Plan, or (c) if the Plan has been amended within the preceding six months, unless such amendment is necessary to comply with changes in the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as amended, or rules promulgated thereunder. F. CHANGE OF CONTROL After a "Change in Control," no amendments, suspension to or action to terminate the Plan may be made which would affect Compensation earned prior to such amendments, suspensions or termination without the written consent of a majority of participants determined as of the day before a "Change in Control." Any decision or interpretation adopted by the Committee shall be final and conclusive. A "Change in Control" shall mean the occurrence of any of the following events: 1. if any person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) becomes, directly or indirectly, the beneficial owner of twenty percent (20%) or more of the shares of the Company entitled to vote for the election of directors; 2. as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event shall cease to constitute a majority of the Company's Board of Directors; or 3. the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. G. PARTICIPATION 1. Each non-employee director of Darden Restaurants, Inc., may elect by written notice to the Company on or before each annual stockholder meeting, to participate in the Compensation alternative provisions of the Plan. Any combination of the alternatives--Cash, Deferred Cash and/or Company Common Stock--may be elected, provided the aggregate of the alternatives elected equals one hundred percent of the non-employee director's Compensation. 2. The election shall remain in effect for a one-year period which shall begin the day of the annual stockholders meeting in September and terminate the day before the succeeding annual stockholders meeting (hereinafter "Plan Year"). The first election hereunder shall be the election made on or before the September 2000 annual stockholders meeting, and such election shall remain effective until the annual stockholders meeting to be held in September 2001. If a non-employee director fails to submit an election prior to the commencement of a new Plan Year, the election from the prior year shall remain in effect. 3. The Plan Year shall include four Plan Quarters. Plan Quarters shall correspond to the Company's fiscal quarters. 4. A director elected to the Board after the September Board meeting may elect, by written notice to the Company before such director's term begins, to participate in the Compensation alternatives for the remainder of that Plan Year, and elections for succeeding years shall be on the same basis as other directors. 2 5. As soon as possible after the end of each Plan Year, the Company shall supply to each participant an account statement of participation under the Plan. 6. Unless otherwise notified, all notices under this Plan shall be sent in writing to the Company, attention the Supervisor, Management Stock Plans, 5900 Lake Ellenor Dr., Orlando, FL 32809. All correspondence to the participants shall be sent to the address which is their recorded address as listed on the election forms. PART II CASH COMPENSATION PROVISIONS A. Each non-employee director who elects to participate under the Cash Compensation Provision of the Plan shall be paid all or the specified percentage of his or her Compensation for the Plan Year in cash, and such cash payment shall be made as of the end of each Plan Quarter. B. If a participant dies prior to payment in full of all amounts due under the Plan, the balance of the amount due shall be payable in full to such participant's designated beneficiary, or, if none, the estate as soon as possible following death. PART III DEFERRED CASH COMPENSATION PROVISION A. Each non-employee director may elect to have all or a specified percentage of his or her Compensation for the Plan Year deferred until the participant ceases to be a director. B. For each director who has made this Deferred Cash election, the Company shall establish a deferred compensation account and shall credit such account quarterly for the Compensation due. Each account shall be credited daily at the rate or rates of return of funds or portfolios established under a qualified benefit plan maintained by the Company which the Committee or the Minor Amendment Committee of the Committee (the "Minor Amendment Committee"), or its delegate, in its discretion, may from time to time establish. With respect to allocations made to the Company Common Stock fund, stock units shall be credited as of the last business day of the fiscal quarter, based on the mean of the high and low sale prices of Company Common Stock on the New York Stock Exchange as reported in the consolidated transaction reporting system. On each payment date for cash dividends paid on the Company's Common Stock, the Company shall credit to each participant's account a dividend equivalent amount equal to the cash dividends that would be payable by the Company on a number of shares of Common Stock equal to the number of stock units then credited to the participant's account. Such dividend equivalent amounts shall then be credited in the form of additional stock units, based on the mean of the high and low sale prices of Company Common Stock on the New York Stock Exchange as reported in the consolidated transaction reporting system on the date of the dividend payment date. Participants will have no rights as shareholders with respect to stock units credited to their accounts. Payment of amounts allocated to stock units shall be in the form of Company Common Stock and not in cash. Only a whole number of shares shall be issued, with any fractional share amount paid in cash. C. Distribution of the participant's deferred compensation account shall be as follows: 1. at the time, and in the form of payment, elected by the participant at the time of deferral, provided that payments will not commence until the participant ceases to be a director; or 2. in the absence of an election at the time of deferral, in ten substantially equal annual installments beginning on January 1 of each year following the year in which the participant ceases to be a director; or 3. if a participant makes a written request before payments have commenced, and such request is approved by the Committee, payments may be made in some other lesser number of substantially equal annual 3 installments or in a single sum paid on a date prior to the otherwise scheduled payment commencement date; or 4. if a participant makes a written request after payments have commenced in the form of installments, payments may be made in some other lesser number of substantially equal annual installments or in a single lump sum paid on a date prior to the otherwise scheduled payment dates, provided, however, effective immediately prior to the commencement of benefit payments pursuant to the participant's request, there shall be irrevocably forfeited from the participant's account an amount equal to ten percent (10%) of the balance of that account. Payments shall then be made based on the participant's account balance after reduction for the forfeiture noted above (plus any subsequent interest credits which may be credited to the account). Each installment or lump sum payment shall include the rate of return on the outstanding account balance to the date on which the distribution occurs. Except as specifically provided herein, the method of distribution approved by the Committee shall be irrevocable. D. In the event of a severe financial hardship, a participant may apply to receive a distribution of his or her account earlier than initially elected. The Committee will review the request and shall either approve or deny the request. The determination made by the Committee will be final and binding on all parties. If the request is granted, the Committee will accelerate payments only to the extent reasonably necessary to alleviate the financial hardship. E. If a participant dies prior to payment in full of all amounts due under the Plan, the balance of the amount due shall be payable in full to the participant's designated beneficiary, or, if none, the estate as soon as possible following death. F. Notwithstanding any other provision of this Plan to the contrary, the Committee, by majority approval, may, in its sole discretion, direct that payments be made before such payments are otherwise due if, for any reason (including, but not limited to, a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his or her delegate, or a decision by a court of competent jurisdiction involving a participant or beneficiary), it believes that a participant or beneficiary has recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plan before they are paid to him. In making this determination, the Committee shall take into account the hardship that would be imposed on the participant or beneficiary by the payment of federal income taxes under such circumstances. PART IV DRI COMMON STOCK PROVISIONS A. Each participant may elect to receive all or a specified percentage of his or her Compensation in shares of Darden Restaurants, Inc. Common Stock, which will be issued at the end of each Plan Quarter. B. The Company shall ensure that an adequate number of Darden Restaurants, Inc. shares of Common Stock are available for distribution to those participants making this election. C. Only whole number of shares will be issued, with any fractional share amounts paid in cash. D. For purposes of computing the number of shares earned each Plan Quarter, the value of each share shall be equal to the mean of the high and low prices of shares of Darden Restaurants, Inc. Common Stock on the New York Stock Exchange on the last Business Day of each Plan Quarter. For the purposes of this Plan, "Business Day" shall mean a day on which the New York Stock Exchange is open for trading. 4 E. If a participant dies prior to payment in full of all amounts due under the Plan, the balance of the amount due shall be payable in full to the participant's designated beneficiary, or, if none, to the participant's estate, in cash, as soon as possible following death. PART V DEFERRAL OF OPTION GAIN AND STOCK AWARDS A. PURPOSE AND EFFECT This Part V authorizes the deferral of gains from the exercise of Stock Options and the deferred receipt of Common Stock that would otherwise be received due to a Stock Award, notwithstanding any other provision in the Plan to the contrary. The Stock Options and Stock Awards that may be subject to deferral elections authorized by this Part V are limited to those made under the following stock plans of the Company (collectively, the "Stock Plans"): (a) Darden Restaurants, Inc. Stock Plan for Directors; (b) Darden Restaurants, Inc. 2002 Stock Incentive Plan; and (c) any future stock plan, agreement or arrangement of the Company that explicitly provides for such deferral elections. In accordance with the rules set forth in this Part V, eligible Participants may elect to (i) defer receipt of all or a portion of the shares of Common Stock representing the net gain on exercise of a Stock Option in connection with a Participant's stock-for-stock option exercise ("Option Deferral") and (ii) defer receipt of shares of Common Stock that would have been issued under a Stock Award in exchange for the Company's agreement to pay deferred compensation in the form of unrestricted shares of Common Stock ("Stock Deferral"). Grants of Stock Options and Stock Awards are governed by the Stock Plans, as they may be amended from time to time. No stock options or shares of Common Stock are authorized to be issued under this Plan (other than pursuant to Part III or IV of the Plan). Participants who elect to make a deferral in accordance with this Part V will have no rights as shareholders of the Company with respect to Stock Units credited to their Deferred Stock Unit Accounts. B. DEFINITIONS For purposes of this Part V, the terms defined elsewhere in the Plan shall have the same meanings when used in this Part V unless a different meaning is given in this Part V. In addition, the terms listed below shall have the following meanings: (a) Common Stock shall mean the common stock, without par value, of Darden Restaurants, Inc. (b) Compensation Committee shall mean the Compensation Committee of the Board of Directors of the Company. (c) Deferred Stock Unit Account shall mean the account established for each Participant in accordance with Subpart F of this Part V. (d) Exercise Date shall mean the date as of which a Stock Option is exercised under the applicable Stock Plan. (e) Net Shares shall mean: (i) with respect to any Option Deferral pursuant to Subpart D of this Part V, the number of shares of Common Stock subject to the deferral election ("Deferred Shares") as to which the Stock Option has been exercised, less the number of shares of Common Stock 5 delivered to pay the exercise price for the Deferred Shares in a stock-for-stock exchange, and less any shares used to satisfy any taxes due at the time Stock Units are credited due to the Option Deferral; and (ii) with respect to any Stock Deferral, the number of shares of Common Stock that are subject to the deferral election that would have been issued pursuant to a Stock Award, less any shares that are used to satisfy any taxes due at the time Stock Units are credited due to the Stock Deferral. (f) Participant shall mean a person who is eligible under Subpart C of this Part V to make an Option Deferral as described in Subpart D of this Part V or a Stock Deferral as described in Subpart E of this Part V. A person who has become a Participant shall be considered to continue as a "participant" within the meaning of the Plan (even if such person subsequently becomes ineligible to make deferrals under this Part V) until the date of the Participant's death or, if earlier, the date when the Participant no longer satisfies the eligibility requirements in Subpart C of this Part V and the Participant has received a distribution of all of the Participant's Deferred Stock Unit Account. (g) Stock Award shall mean any award of Common Stock pursuant to one or more of the Company's Stock Plans. (h) Stock Option shall mean any stock option granted pursuant to one or more of the Company's Stock Plans. (i) Stock Unit shall mean one of the units credited to Participants' Deferred Stock Unit Accounts based on the number of Net Shares. C. ELIGIBILITY A person shall be eligible to make deferrals pursuant to this Part V if he or she is a non-employee director of the Company. A person who ceases to be a non-employee director of the Company shall not be eligible to make deferrals pursuant to this Part V. D. OPTION DEFERRAL As of any election date that is (i) at least six full months in advance of the applicable Exercise Date and (ii) at least six full months in advance of the date the applicable Stock Option expires, a Participant may complete and submit to the Company an irrevocable election to defer receipt of Net Shares of Common Stock resulting from a stock-for-stock exercise of an exercisable Stock Option granted to the Participant and to only pay for such exercise by tendering shares of Common Stock. Such deferral election shall specify the following: (a) the specific Stock Option grant and the number of shares of Common Stock subject to the deferral election; and (b) the distribution date and form of distribution, in accordance with the rules for payment under Part III of the Plan as modified by Subpart G below. A Participant may make a deferral election with respect to all or only a portion of the shares of Common Stock subject to a Stock Option ("Stock Option"). The portion of a Stock Option subject to a deferral election may not be exercised until six full months after the deferral election is made and must be exercised separately from the remainder of the Stock Option. No partial exercise of the portion of a Stock Option subject to the deferral election shall be permitted. A Participant may not deliver cash in lieu of shares of Common Stock to satisfy the Stock Option exercise price for shares subject to a deferral election. All shares of Common Stock delivered to pay the exercise price must, on the Exercise Date, have been owned by the Participant without restriction for at least six full months. E. STOCK DEFERRAL 6 Prior to the date on which a Participant would be granted a Stock Award, a Participant may complete and submit to the Company an irrevocable election not to receive shares of Common Stock pursuant to that award, and to be credited instead with a number of Stock Units equal to the number of Net Shares resulting from the deferral election. Such deferral election shall specify the following: (a) the anticipated Stock Award; and (b) the Distribution Date and form of distribution, in accordance with the rules for payment under Part III of the Plan, as modified by Subpart G below. Any deferral election made pursuant to this Subpart E shall apply to all of the shares of Common Stock attributable to the specified Stock Award (after reduction for any portion of the Stock Award that the Participant has elected to receive in the form of an immediate cash payment). F. DEFERRED STOCK ACCOUNTS A Deferred Stock Unit Account shall be established on behalf of each Participant for Net Shares deferred under Subpart D or E of this Part V. The provisions of this Subpart F shall be subject to the following rules: (a) For each Net Share deferred, a Stock Unit shall be credited to the Participant's Deferred Stock Unit Account effective as of the applicable Exercise Date or, in the case of a Stock Deferral, the date of the Stock Award. (b) On each payment date for cash dividends paid on the Company's Common Stock, the Company shall pay to each Participant a dividend equivalent amount equal to the cash dividends that would be payable by the Company on a number of shares of Common Stock equal to the number of Stock Units then credited to the Participant's Deferred Stock Unit Account. Such dividend equivalent amounts shall be paid directly to Participants in cash and shall not be eligible for deferral under this Plan. (c) In the event that the Compensation Committee determines that any dividend or other distribution (whether in the form of cash, Common Stock, securities of a subsidiary of the Company, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment to the Participants' allocations to their Deferred Stock Unit Accounts is appropriate to prevent the reduction or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Compensation Committee, may, in its sole discretion and in such manner as it may deem equitable, adjust the Stock Units credited to the Participants' Deferred Stock Unit Accounts. G. PAYMENT OF DEFERRED AMOUNTS The rules regarding payment of amounts under Part III of the Plan shall apply to Deferred Stock Unit Accounts, except that (a) payment of Deferred Stock Unit Accounts shall be made only in the form of shares of Common Stock and not in cash, (b) payment with respect to Stock Units that are attributable to a Stock Deferral shall not occur prior to the time when any transfer restrictions that would have applied to the relevant Stock Award would have ended; and 7 (c) unless the Participant elects otherwise prior to the commencement of payment, the Company shall, to the extent permitted by law, withhold from the shares of Common Stock to be transferred to the Participant the number of shares sufficient to satisfy any tax withholding required at the time of payment. Any reduction in the amount payable required in order to receive an accelerated distribution pursuant to Section 3 of Subpart C in Part III of the Plan shall be rounded up to the nearest whole share. H. FORMS AND PROCEDURE Deferral elections made pursuant to this Part V must be made in writing on forms approved by the Compensation Committee, and shall be subject to such other procedural rules as the Compensation Committee may establish. I. EFFECT ON STOCK OPTIONS AND RESTRICTED STOCK AWARDS Deferral elections made pursuant to this Part V shall constitute amendments to the Stock Options and Stock Awards to which the deferral elections apply. Any shares of Common Stock paid pursuant to this Part V on account of a Participant's deferral election shall be deemed issued under the Stock Plan under which the corresponding Stock Option or Stock Award was granted. 8 EX-10 8 exhibit10lfy02.txt EXHIBIT10L REST. MGMT. & EMP. STOCK PLAN OF 2000 EXHIBIT 10(l) DARDEN RESTAURANTS, INC. RESTAURANT MANAGEMENT AND EMPLOYEE STOCK PLAN OF 2000 (AMENDED AND RESTATED AS OF JULY 26, 2002) 1. PURPOSE OF THE PLAN The purpose of the Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000 (the "Plan") is to assist Darden Restaurants, Inc., its subsidiaries and affiliates (i.e., entities in which Darden Restaurants, Inc. directly or indirectly owns an equity interest of 25% or more) (collectively, the "Company") in attracting and retaining able employees, including but not limited to restaurant management employees. The Plan is designed to provide incentives and awards to employees who may be responsible for the management, growth and sound development of the restaurants of the Company, and to align the interests of employees with the interests of the Company's stockholders. The Plan allows the Company to award "Stock Options", "Restricted Stock" or "Restricted Stock Units" (hereinafter defined) to its employees in lieu of salary increases or other consideration, compensation or benefits, as an incentive award, or as a bonus, including but not limited to a "sign-on" award or bonus to a new employee at the time of his or her hiring. 2. EFFECTIVE DATE, DURATION AND SUMMARY OF PLAN A. Effective Date and Duration This Plan is effective as of January 1, 2000. Awards may be made under the Plan until January 1, 2004. B. Summary of Stock Option Provisions for Participants The stock option ("Stock Option") that may be awarded to an employee under this Plan gives the employee a right to purchase Darden Restaurants, Inc. "Common Stock" (hereinafter defined) at a fixed price at a future date. An employee will receive an option agreement in his or her name. The option agreement will contain the term and other conditions of the option grant, including any consideration the employee will forego or exchange as a condition of the grant. In general, each option agreement will state the number of shares of Darden Restaurants, Inc. Common Stock that the employee can purchase from the Company, the price at which shares may be purchased, and the last date upon which a purchase may be made. An award of Stock Options under this Plan will not result in any taxable income at the time of receipt of the award and the option agreement. The price at which the employee may buy Darden Restaurants, Inc. shares will be equal to the market price of the shares on the New York Stock Exchange as of the day of the Stock Option award. If the price of Darden Restaurants, Inc. Common Stock has risen when the Stock Option becomes exercisable, the employee will be able to gain by exercising the Stock Option. The gain would equal the difference between the exercise price of the Stock Option and the market price of Darden Restaurants, Inc. shares on the date the employee buys shares under the terms of the option certificate. This gain would be taxable to the employee at the time of exercise, unless deferred in accordance with the provisions of the Stock Option agreement. The employee will never be obligated to buy shares of the Company if he or she does not wish to do so. Once the Stock Option becomes exercisable, the employee can continue to hold it as an employee for its remaining term before making the decision whether or not to buy shares of the Company. After the term of the Stock Option expires, the rights under the Stock Option will lapse and it cannot be used by the employee. 1 In general, the employee cannot sell or assign the Stock Option to any other person. The specific provisions covering Stock Option transferability are covered in Section 10 and other portions of the Plan. 3. ADMINISTRATION OF THE PLAN The Plan will be administered by the Compensation Committee of the Company (the "Committee"). The Committee will be comprised solely of non-employee, independent members of the Board of Directors of the Company (the "Board") appointed in accordance with the Company's Articles of Incorporation and By-laws. Subject to the express provisions of the Plan and applicable law, the Committee will have authority to: (i) adopt rules and regulations for carrying out the purpose of the Plan; (ii) select the employees to whom "Awards" (hereinafter defined) will be made; (iii) determine the number of shares to be awarded and the other terms and conditions of Awards in accordance with the provisions of the Plan; (iv) amend the terms and conditions of any Award or agreement relating to any Award, provided, however, that, except as otherwise provided in Section 4 hereof, the Committee shall not reprice, adjust or amend the exercise price of Stock Options previously awarded to any Participant (hereinafter defined), whether through amendment, cancellation and replacement grant, or any other means; (v) determine whether, to what extent and under what circumstances cash, Common Stock and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder of the Award or the Committee; and (v) interpret, construe and implement the provisions of the Plan. In addition, if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), so permits, the Committee may delegate its duties under the Plan, in whole or in part to the Chief Executive Officer and to other senior officers of the Company if so doing will not adversely affect the Plan's exemption from Section 16 of the 1934 Act (or any successor provisions) provided by Rule 16b-3. Notwithstanding the foregoing, only the Committee may select and make other decisions as to Awards to employees who are executives of the Company, provided that officers and directors who are subject to reporting obligations under Section 16 of the 1934 Act are not eligible to receive Awards under this Plan. The Committee (or its permitted delegate) may correct any defect or supply any omission or reconcile any inconsistency in any agreement relating to any Award under the Plan in the manner and to the extent it deems necessary. Decisions of the Committee (or its permitted delegate) shall be final, conclusive and binding upon all parties, including the Company, stockholders and employees. 4. COMMON STOCK SUBJECT TO THE PLAN Only the shares of common stock of the Company (without par value) ("Common Stock") held in the Company's treasury may be transferred to the employee upon exercise of a Stock Option, awarded as Restricted Stock, or transferred upon expiration of the restricted period for Restricted Stock Units. The Committee, in its discretion, may require, as a condition to the grant of Stock Options, Restricted Stock or Restricted Stock Units (collectively, "Awards"), the deposit of Common Stock owned by the employee receiving such grant, and, if the required deposit is not made or maintained during the required holding period or the applicable restricted period, the forfeiture of such Awards. Required deposits of Common Stock may not be sold, pledged, transferred or assigned during the applicable holding period or restricted period. The Committee may also determine whether any shares issued upon exercise of a Stock Option will be restricted in any manner. Subject to the following provisions of this Section 4, the maximum aggregate number of treasury shares of Common Stock authorized under the Plan and for which Awards may be granted is five million four hundred thousand (5,400,000). Upon the expiration, forfeiture, termination or cancellation, in whole or in part, of Restricted Stock Units or unexercised Stock Options, or the forfeiture or other reacquisition by the Company of shares of Restricted Stock, the shares of Common Stock held in the Company's treasury and previously allocated to such Stock Options, Restricted Stock or Restricted Stock Units will again be available for Awards under the Plan. To the extent that any shares of Common Stock covered by an Award are not delivered to a Participant (as hereafter defined) or beneficiary because such shares are used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Common Stock available for delivery under 2 the Plan. If the exercise price of any Stock Option granted under the Plan (and/or the applicable tax withholding obligation relating to such exercise) is satisfied by tendering shares of Common Stock to the Company, only the number of shares of Common Stock issued net of the shares of Common Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Common Stock available for delivery under the Plan. In addition, any shares of Common Stock that are purchased by the Company in the open market or in private transactions having an aggregate purchase price no greater than the amount of cash proceeds received by the Company from the exercise of Stock Options under the Plan will again be available for Awards under the Plan. The number of shares subject to the Plan, the outstanding Awards and the exercise price per share of outstanding Stock Options may be appropriately adjusted by the Committee in the event that: (i) the number of outstanding shares of Common Stock will be changed by reason of split-ups, spin-offs, combinations or reclassifications of shares; (ii) any stock dividends are distributed to the holders of Common Stock; (iii)the Common Stock is converted into or exchanged for other shares as a result of a merger or consolidation (including a sale of assets) or other recapitalization, or similar events occur that affect the value of the Common Stock; or (iv) the Committee determines such adjustments are appropriate to prevent a material dilution or material enlargement of the benefits or potential benefits intended to be made available under the Plan. 5. ELIGIBLE PERSONS Only persons who are employees of the Company shall be eligible to receive Awards under the Plan ("Participants"). No Award will be made to any member of the Committee, any other non-employee director of the Company, or any officer or director subject to the reporting obligations of Section 16 of the 1934 Act. 6. PURCHASE PRICE OF STOCK OPTION SHARES The purchase price for each share of Common Stock that may be purchased under a Stock Option will not be less than 100% of the "Fair Market Value" (hereinafter defined) of the shares of Common Stock on the date of grant. "Fair Market Value", as used in the Plan, equals the mean of the high and low prices of the Common Stock on the New York Stock Exchange on the applicable date. 7. STOCK OPTION TERM AND TYPE The term of any Stock Option may not exceed ten (10) years from the date of grant and will expire as of the close of business on the last day of the designated term, unless terminated earlier under the provisions of the Plan. All Stock Option grants under the Plan are non-qualified stock options governed by Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"). 8. EXERCISE OF STOCK OPTIONS A. Except as provided in Sections 12 and 13 ("Change of Control" and "Termination of Employment"), each Stock Option may be exercised no sooner from the date of grant than in increments of one-fourth after one year, one-fourth after two years, one-fourth after three years and one-fourth after four years, subject to the Participant's continued employment with the Company and other terms and conditions prescribed by the Committee. Notwithstanding the foregoing, the Committee (or its delegate) may specify a longer period before a Stock Option may be exercised. 3 B. A Participant exercising a Stock Option must notify the Company prior to 5:00 P.M. EST/EDT on the day of exercise, which must be a business day at the offices of the Company's Restaurant Support Center. The notification of such exercise must include the number of shares to be purchased. At the time of purchase, the Participant must tender the full purchase price of the shares purchased. Until such payment has been made and a certificate (or certificates) for the shares purchased has been issued in the Participant's name, the Participant will possess no stockholder rights with respect to such shares. Payment of the purchase price will be made to the Company as follows, subject to any applicable rules or regulations adopted by the Committee: (i) in cash (including check, draft, money order or wire transfer payable to the order of the Company); or (ii) through the delivery of shares of Common Stock owned by the Participant; or (iii)to the extent permitted by law and pursuant to any rules the Committee may adopt, by directing the Company to withhold from any shares of Common Stock to be transferred to the Participant, all or a portion of such shares; or (iv) by a combination of (i), (ii) or (iii) above. For purposes of determining the amount of a payment under subsections (ii) or (iii), above, the Common Stock will have a value equal to its Fair Market Value on the date of exercise. C. The Committee may permit a Participant to elect to defer receipt of all or a portion of the shares of Common Stock issuable upon exercise of a Stock Option, all on such terms and conditions as the Committee shall determine (including through the terms of the FlexComp Plan). 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS With respect to Awards of Restricted Stock and Restricted Stock Units, the Committee will: (i) select Participants to whom Awards will be made, provided that Restricted Stock Units may only be awarded to Company employees who are employed outside the United States; (ii) determine the number of shares of Restricted Stock or the number of Restricted Stock Units to be awarded; (iii)determine the length of the restricted period, which may not be less than one year, provided, however, that effective for Restricted Stock granted on or after June 1, 2000, the restricted period may be accelerated to less than one year based on performance goals established by the Committee; (iv) determine the consideration, if any, to be exchanged by the Participant as a condition to a grant of Restricted Stock or Restricted Stock Units; and (v) determine any restrictions in addition to those set forth in this Section 9. Any shares of Restricted Stock granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, by book-entry registration or by issuance of stock certificates. Such shares may be held in escrow. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock will have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. 4 Each Participant who receives Restricted Stock Units will be eligible to receive, at the expiration of the applicable restricted period, one share of Common Stock for each Restricted Stock Unit awarded. The Company will transfer the amount of Common Stock from treasury shares and register a certificate in the name of each such Participant. Participants who receive Restricted Stock Units will have no rights as stockholders with respect to such Restricted Stock Units until such time as share certificates for Common Stock are transferred to the Participants. However, quarterly during the applicable restricted period for all Restricted Stock Units awarded under this Plan, the Company will pay to each such Participant an amount equal to the sum of all dividends and other distributions paid by the Company during the prior quarter on an equivalent number of shares of Common Stock. Subject to the provisions of Section 12, for awards of Restricted Stock or Restricted Stock Units that have a deposit requirement, a Participant will be eligible to vest only in those shares of Restricted Stock or Restricted Stock Units for which personally-owned shares are on deposit with the Company as of the date the Participant's employment with the Company terminates. The Committee may permit a Participant to elect to transfer shares of Restricted Stock to the Company in exchange for a deferred compensation right or Restricted Stock Units or elect to defer receipt of all or a portion of the shares of Common Stock subject to Restricted Stock Units, all on such terms and conditions as the Committee shall determine (including through the terms of the FlexComp Plan). The total number of shares of Common Stock issued through the vesting of Awards of Restricted Stock or Restricted Stock Units granted under the Plan will not exceed five percent (5%) of the total number of shares authorized for this Plan. No single Participant will receive Awards of Restricted Stock or Restricted Stock Units under the Plan if, upon vesting, would exceed two percent (2%) of the total number of shares authorized for the Plan. 10. NON-TRANSFERABILITY Except as otherwise provided in Section 9, no shares of Restricted Stock and no Restricted Stock Units may be sold, exchanged, transferred, pledged, or assigned during the restricted period. A Participant may not sell, exchange, transfer, pledge or assign any Stock Options awarded under this Plan except (i) by the Participant's last will and testament through the executor or legal representative of the deceased Participant's estate or (ii) by the applicable laws of descent and distribution, or (iii) by gift to a "family member", as defined by the Committee, from a Participant who is subject to the reporting requirements of Section 16 of the 1934 Act and is eligible for retirement (age 55 with 10 years of service) at the time of the gift. Stock Options granted under this Plan may be exercised during the Participant's lifetime only by the Participant or his or her guardian or legal representative. After death, such Stock Options may be exercised in accordance with Section 13B. Other than as set forth in this Plan, no Award under the Plan will be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to the contrary will be void. 11. WITHHOLDING TAXES As conditions precedent to the obligations of the Company to deliver shares of Common Stock upon the exercise of a Stock Option, and to transfer shares of unrestricted Common Stock from the treasury upon the vesting of Restricted Stock or Restricted Stock Units, the Participant must pay to the Company cash in an amount equal to all required federal, state, local and foreign withholding taxes. Notwithstanding the foregoing, to the extent permitted by law and pursuant to any rules the Committee may adopt, a Participant may authorize and direct the Company to satisfy any such tax withholding requirement by withholding the number of shares sufficient to satisfy the withholding obligation from the Common Stock to be transferred to the Participant. 5 12. CHANGE OF CONTROL Each outstanding Stock Option will become immediately and fully exercisable for a period of six (6) months following the date of any of the following occurrences (each called a "Change of Control"): (i) if any person (including a group as defined in Section 13(d)(3) of the 1934 Act) becomes, directly or indirectly, the beneficial owner of twenty percent (20%) or more of the shares of the Company entitled to vote for the election of directors; (ii) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event cease to constitute a majority of the Company's Board of Directors; or (iii)the stockholders of the Company approve an agreement providing for a transaction in which the Company will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of the Company occurs. After such six-month period, the normal option exercise provisions of the Plan will govern. If a Participant is terminated as an employee of the Company within two (2) years after any of the events specified in (i), (ii) or (iii), his or her outstanding Stock Options on the date of termination will become immediately exercisable for a period of three (3) months. For Stock Option grants that require the deposit of employee-owned Common Stock as a condition to obtaining rights and that are outstanding as of the date of any such Change of Control, (a) the deposit requirement will terminate on the date of the Change of Control and deposited stock will be promptly returned to the Participant, and (b) any restrictions on the sale of shares issued upon the exercise of any such Stock Option will lapse. In the event of a Change of Control, a Participant will vest in all shares of Restricted Stock and Restricted Stock Units effective on the date of the Change of Control, and any matching deposits of Common Stock will be promptly returned to the Participant. 13. TERMINATION OF EMPLOYMENT A. Termination of Employment If the Participant's employment with the Company terminates for any reason other than as specified in this Section 13, the Participant's Stock Options will terminate three (3) months after such termination and all shares of Restricted Stock and all Restricted Stock Units that are subject to restriction on the termination date will be forfeited by the Participant to the Company. In the event a Participant's employment with the Company is terminated for the convenience of the Company, as determined by the Committee, the Committee (or its delegate), in its (or its delegate's) sole discretion, may vest the Participant in all or any portion of outstanding Stock Options (which shall become exercisable) and/or shares of Restricted Stock or Restricted Stock Units awarded to such Participant, effective as of the date of such termination or according to any other schedule that the Committee (or its delegate) deems appropriate. In addition, and notwithstanding the foregoing provisions of this Section 13A, effective for Stock Options granted on or after March 21, 2001, if a Participant's employment with the Company is terminated for the convenience of the Company and for reasons other than cause (as determined by the Committee), and the Participant's combined age and years of service with the Company equal at least 70 at the time of such termination, then the Participant's Stock Options that would have vested within two years from the date of termination shall vest and become immediately 6 exercisable, and shall expire on the earlier of (i) the expiration date of such Stock Options, or (ii) two years following the termination of employment. B. Death If a Participant dies while employed by the Company, any Stock Option previously granted under this Plan may be exercised by the following persons to the full extent that such Stock Option could have been exercised by the Participant immediately prior to death: (i) by the person (which may include any individual, corporation, partnership, association or trust) designated in the Participant's last will and testament or, (ii) in the absence of such designation, by the executor or administrator of the Participant's estate, or (iii) by the person to whom the Stock Option has been transferred to by such executor or administrator pursuant to Section 10, or (iv) by the donee of a Stock Option made pursuant to Section 10 (iii). Outstanding Stock Option grants that are not otherwise exercisable as of the date of death will vest and become exercisable in a pro-rata amount, based on the ratio that the number of full months of employment completed during the Stock Option's vesting period, from the date of grant to the date of death, bears to the number of full months in the Stock Option's vesting period. If a Participant dies while employed by the Company, his or her Stock Option grants conditioned on a deposit of employee-owned Common Stock may be exercised as provided in the first paragraph of this Section 13B, subject to the following special conditions: (i) any restrictions on the sale of shares issued upon the exercise of any such Stock Option will cease; and (ii) any employee-owned Common Stock deposited by the Participant as a condition to the Stock Option grant will be promptly returned to the person (which may include any individual, corporation, partnership, association or trust) designated in the Participant's last will and testament or, in the absence of such designation, to the Participant's estate, and all requirements regarding deposit by the Participant will terminate. A Participant who dies during any applicable restricted period will vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units, effective as of the date of death. The proportionate vesting will be based on the ratio that the number of full months of employment completed during the restricted period prior to the date of death bears to the number of full months in the applicable restricted period. C. Retirement The Committee will determine, at the time of grant, the treatment of a Stock Option upon the retirement of the Participant. Unless other terms are specified in the original Stock Option grant, and except for Stock Options granted on or after March 21, 2001, a Participant who retires from the Company at or after age 55, with 10 years of service with the Company, may exercise the Stock Option according to its original terms and conditions. For Stock Option grants conditioned on the deposit of employee-owned Common Stock, any restrictions on the sale of shares issued upon the exercise of any such Stock Option will lapse on the date of retirement of a Participant at or after age 55 with 10 years of service with the Company. Effective for Stock Options granted on or after March 21, 2001, if a Participant retires on or after reaching age 55 with 10 years of service with the Company, then upon such retirement, such Stock Options shall fully vest and become immediately exercisable and retain the same Expiration Date as determined at the time of grant. A Participant shall be fully vested in all shares of Restricted Stock or Restricted Stock Units upon attainment of age 65 (unless any such award specifically provides otherwise). 7 Unless the applicable Award provides otherwise, a Participant who retires at or after age 55 with 10 years of service with the Company, but prior to age 65, during any applicable restricted period may elect either of the following alternatives for Restricted Stock or Restricted Stock Units: (a) leave employee-owned shares on deposit with the Company and vest in all shares of Restricted Stock or Restricted Stock Units, effective as of the earlier of the date the Participant attains age 65 or the expiration of the applicable restricted period; or (b) withdraw employee-owned shares and vest in a proportionate number of shares of Restricted Stock or Restricted Stock Units as of the date the shares on deposit are withdrawn. The proportionate vesting will be based on the ratio that the number of full months of employment completed during the restricted period prior to the date of retirement bears to the number of full months in the applicable restricted period. D. Spin-offs If termination of employment is due to the cessation, transfer, or spin-off of a complete line of business of the Company, the Committee, in its sole discretion, may determine the treatment of all outstanding Awards under the Plan. E. Non-Competition Effective for Stock Options granted on or after June 21, 1999, recipients of such Stock Options shall not, for a period of two years following termination of their employment with the Company for any reason whatsoever (including retirement), directly or indirectly, (i) own, manage or operate, be employed by, or render consulting, advisory or other services to, any enterprise, corporation or business that owns or operates casual dining restaurants, anywhere in the United States or Canada (a "Competitor"), or (ii) solicit or induce any person who is an employee of the Company to own, manage or operate, be employed by, or render consulting, advisory or other services to, a Competitor. Notwithstanding anything to the contrary contained in paragraphs A through D of this Section 13, upon violation by a Participant of the non-compete provisions of this paragraph E, all of such Participant's outstanding Stock Options will expire on the earlier of (i) the expiration date of the Stock Options, or (ii) three months following the date of employment with a Competitor or other prohibited competitive action. 14. AMENDMENTS OF THE PLAN The Plan may be terminated, modified, or amended by the Board of Directors of the Company or, subject to the limitations of its delegated authority, by the Committee. In addition, the Committee may from time to time prescribe, amend and rescind rules and regulations relating to the Plan. Subject to approval of the Board of Directors, the Committee may at any time terminate or suspend the operation of the Plan, provided that the Committee may take no action without the approval of the Board of Directors of the Company that would: (i) materially increase the number of shares that may be issued under the Plan; (ii) materially increase the benefits accruing to Participants under the Plan; or (iii) materially modify the requirements as to eligibility for participating in the Plan. The Board of Directors will have authority to cause the Company to take any action related to the Plan that may be required to comply with the provisions of the Securities Act of 1933, as amended, the 1934 Act, and the rules and regulations prescribed by the Securities and Exchange Commission. Any such action will be at the expense of the Company. 8 Except as provided for in the preceding, no termination, modification, suspension, or amendment of the Plan shall alter or impair the rights of any Participant pursuant to a prior Award without the consent of the Participant. There is no obligation for uniformity of treatment of Participants under the Plan. 15. FOREIGN JURISDICTIONS; GOVERNING LAW If not inconsistent with the intent of the Plan, the Committee may adopt, amend, and terminate such arrangements as it may deem necessary or desirable to provide tax advantages or other benefits under the laws of any foreign jurisdiction to Participants subject to such laws. Notwithstanding the foregoing, the provisions of this Plan are to be construed under, and governed by, the laws of the State of Florida. 16. NOTICE All notices to the Company regarding the Plan must be in writing and will be effective when actually received by the Company. Notices must be sent to: Darden Restaurants, Inc. 5900 Lake Ellenor Dr. Orlando, FL 32809 Attn: General Counsel 9 EX-12 9 exhibit12fy02.txt EXHIBIT12 RATIO OF CONSO. EARNINGS - FIXED CHRGS EXHIBIT 12 DARDEN RESTAURANTS, INC. COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands)
Fiscal Year Ended - ----------------------------------------------------------------------------------------------------------------------- May 26, May 27, May 28, May 30, May 31, 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Consolidated Earnings from Operations before Income Taxes (1)................. $ 363,309 $ 301,218 $ 273,907 $ 215,875 $ 153,672 Plus Fixed Charges: Gross Interest Expense.................. 41,493 35,196 24,999 21,015 21,527 40% of Restaurant and Equipment Minimum Rent Expense................ 20,600 19,352 18,834 18,914 17,042 ----------- --------- ------------ ---------- ---------- Total Fixed Charges........... $ 62,093 $ 54,548 $ 43,833 $ 39,929 $ 38,569 Less Capitalized Interest.................. (3,653) (3,671) (1,910) (593) (1,018) ----------- --------- ------------ ---------- ---------- Consolidated Earnings from Operations before Income Taxes Available to Cover Fixed Charges..................... $ 421,749 $ 352,095 $ 315,830 $ 255,211 $ 191,223 =========== ========= ============ ========== ========== Ratio of Consolidated Earnings to Fixed Charges (1)............................. 6.79 6.45 7.21 6.39 4.96 =========== ========= ============= ========== ========== - ----------------------------------------------------------------------------------------------------------------------- (1) The computation of the Company's ratio of consolidated earnings to fixed charges, before restructuring and asset impairment net credit, is as follows:
Fiscal Year Ended - ---------------------------------------------------------------------------------------------------------------------- May 26, May 27, May 28, May 30, May 31, 2002 2001 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Consolidated Earnings from Operations, before Restructuring and Asset Impairment Net Credit and Income Taxes .................................. $ 360,741 $ 301,218 $ 267,976 $ 207,414 $ 153,672 =========== =========== =========== =========== =========== Ratio of Consolidated Earnings, before Restructuring and Asset Impairment Net Credit, to Fixed Charges.................. 6.75 6.45 7.07 6.18 4.96 =========== =========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------------
EX-13 10 exhibit13.txt EXHIBIT13 DISCUSSION AND ANALYSIS OF FIN. COND. EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes found elsewhere in this report. As of May 26, 2002, Darden Restaurants, Inc. (Darden or the Company) operated 1,211 Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones BBQ Sports Bar restaurants in the United States and Canada and licensed 33 restaurants in Japan. All of the restaurants in the U.S. and Canada are operated by the Company with no franchising. Darden's fiscal year ends on the last Sunday in May. Fiscal 2002, 2001, and 2000 each consisted of 52 weeks of operation. On March 21, 2002, the Company's Board of Directors declared a three-for-two stock split of the Company's common stock. The stock split was effected in the form of a 50 percent stock dividend which was distributed to stockholders on May 1, 2002, for all stockholders of record as of the close of business April 10, 2002. All applicable references to number of shares and per share amounts of common stock have been adjusted to reflect the stock split. RESULTS OF OPERATIONS FOR FISCAL 2002, 2001, AND 2000 The following table sets forth selected operating data as a percentage of sales for the periods indicated. All information is derived from the consolidated statements of earnings for the periods indicated.
Fiscal Years - ------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------- Sales......................................................... 100.0% 100.0% 100.0% Costs and Expenses: Cost of sales: Food and beverage........................................ 31.7 32.6 32.6 Restaurant labor......................................... 31.4 31.6 32.2 Restaurant expenses...................................... 14.4 14.0 13.9 ------ ------ ------ Total Cost of Sales.................................... 77.5% 78.2% 78.7% Selling, general, and administrative....................... 9.7 9.8 9.9 Depreciation and amortization.............................. 3.8 3.7 3.6 Interest, net.............................................. 0.8 0.8 0.6 Restructuring and asset impairment credit, net............. (0.1) -- (0.2) ------ ------ ------ Total Costs and Expenses......................... 91.7% 92.5% 92.6% ------ ------ ------ Earnings before Income Taxes.................................. 8.3 7.5 7.4 Income Taxes.................................................. 2.9 2.6 2.6 ------ ------ ------ Net Earnings.................................................. 5.4% 4.9% 4.8% ====== ====== ====== - -------------------------------------------------------------------------------------------------------------------
SALES Sales were $4.4 billion in fiscal 2002, $4.0 billion in fiscal 2001, and $3.7 billion in fiscal 2000. The 9.4 percent increase in sales for fiscal 2002 was primarily due to increased annual same-restaurant sales in the U.S. and a net increase of 43 Company-owned restaurants since fiscal 2001. Increased U.S. same-restaurant sales for Red Lobster totaled 6.2 percent and resulted primarily from a 2.8 percent increase in average check and a 3.4 percent increase in guest counts. Increased U.S. same-restaurant sales for Olive Garden totaled 6.3 percent and resulted primarily from a 3.1 percent increase in average check and a 3.2 percent increase in guest counts. Red Lobster and Olive Garden have enjoyed 18 and 31 consecutive quarters of U.S. same-restaurant sales increases, respectively. The 8.6 percent increase in sales for fiscal 2001 was primarily due to increased annual same-restaurant sales in the U.S. and a net increase of 29 Company-owned restaurants since fiscal 2000. Increased U.S. same-restaurant sales for Red Lobster totaled 5.9 percent and resulted primarily from a 4.8 percent increase in average check and a 1.1 1 percent increase in guest counts. Increased U.S. same-restaurant sales for Olive Garden totaled 7.2 percent and resulted primarily from a 4.9 percent increase in average check and a 2.3 percent increase in guest counts. COSTS AND EXPENSES Total costs and expenses were $4.0 billion in fiscal 2002, $3.7 billion in fiscal 2001, and $3.4 billion in fiscal 2000. As a percent of sales, total costs and expenses have decreased from 92.6 percent in fiscal 2000 to 92.5 percent in fiscal 2001 to 91.7 percent in fiscal 2002. The following analysis of the components of total costs and expenses is presented as a percent of sales. Food and beverage costs decreased in fiscal 2002 primarily as a result of lower product costs and pricing changes. The comparability in fiscal 2001 and 2000 food and beverage costs is primarily a result of pricing changes, favorable menu-mix changes, and other efficiencies resulting from higher sales volumes in fiscal 2001, offset by higher product costs in fiscal 2001. Restaurant labor decreased in fiscal 2002 and 2001 primarily due to efficiencies resulting from higher sales volumes. Restaurant expenses include lease, property tax, credit card, utility, workers' compensation, new restaurant pre-opening, and other operating expenses. Restaurant expenses increased in fiscal 2002 primarily as a result of increased workers' compensation, credit card, new restaurant pre-opening, and other operating expenses which were only partially offset by lower utility expenses and the impact of higher sales volumes. Restaurant expenses in fiscal 2001 and 2000 were comparable, primarily as a result of higher sales volumes in fiscal 2001 and the fixed component of restaurant expenses in fiscal 2001 which were not impacted by higher sales volumes, offset by higher fiscal 2001 utility expenses. Selling, general, and administrative expenses decreased in fiscal 2002 primarily as a result of decreased national television marketing expenses and the favorable impact of higher sales volumes in fiscal 2002, which were partially offset by the Company's fiscal 2002 donation made as a result of the industry's Dine Out for America benefit and other incremental fiscal 2002 donations to the Darden Restaurants, Inc. Foundation. Selling, general, and administrative expenses in fiscal 2001 were less than fiscal 2000 expenses primarily as a result of reduced marketing expenses and the favorable impact of higher sales volumes in fiscal 2001, which were partially offset by additional labor costs associated with new concept expansion and development. Depreciation and amortization expense increased in fiscal 2002 and 2001 primarily as a result of new restaurant and remodel activity, partially offset by the favorable impact of higher sales volumes. Net interest expense in fiscal 2002 was comparable to fiscal 2001 primarily because increased interest expense associated with higher debt levels was offset by the impact of higher fiscal 2002 sales volumes. Net interest expense in fiscal 2001 increased over fiscal 2000 primarily due to increased interest expense associated with higher debt levels in fiscal 2001, which was only partially offset by the impact of higher fiscal 2001 sales volumes. Pre-tax restructuring credits of $2.6 million and $8.6 million were recorded in fiscal 2002 and 2000, respectively. The reversals resulted primarily because lease terminations in connection with the Company's fiscal 1997 restructuring were more favorable than projected. During fiscal 2000, an asset impairment charge of $2.6 million was recognized related to write-downs of the value of certain properties held for disposition. These amounts had no effect on the Company's cash flow. No restructuring credit or asset impairment expense was recognized in earnings during fiscal 2001. As of May 26, 2002, there was a remaining restructuring liability balance of $1.9 million, which relates primarily to lease buy-out costs associated with one closed leased property in which the lease term does not expire until March 2011. INCOME TAXES The effective income tax rate for fiscal 2002, 2001, and 2000 was 34.6 percent, 34.6 percent, and 35.5 percent, respectively. The comparability of fiscal 2002 and 2001 effective rates was primarily a result of increased tax expense associated with higher fiscal 2002 pre-tax earnings which was offset by fiscal 2002 deductions that were not available in fiscal 2001. The decrease from fiscal 2000 to 2001 resulted primarily from increases in income tax credits and deductions that were not available in fiscal 2000, which was only partially offset by increased tax expense associated with higher fiscal 2001 pre-tax earnings. NET EARNINGS AND NET EARNINGS PER SHARE 2 Net earnings for fiscal 2002 were $237.8 million ($1.30 per diluted share) compared with net earnings for fiscal 2001 of $197.0 million ($1.06 per diluted share) and net earnings for fiscal 2000 of $176.7 million ($.89 per diluted share). Net earnings and diluted net earnings per share for fiscal 2002 increased 20.7 percent and 22.6 percent, respectively, compared to fiscal 2001. Excluding the after-tax restructuring credit of $1.6 million taken in fiscal 2002, net earnings and diluted net earnings per share for fiscal 2002 increased 19.9 percent and 21.7 percent, respectively, compared to fiscal 2001. The increase in both net earnings and diluted net earnings per share was primarily due to increases in sales at both Red Lobster and Olive Garden and decreases in food and beverage costs and restaurant labor as a percent of sales. Diluted net earnings per share also reflected a reduction in the average diluted shares outstanding from fiscal 2001 to fiscal 2002 because of the Company's continuing repurchase of its outstanding common stock. 3 Net earnings and diluted net earnings per share for fiscal 2001 increased 11.5 percent and 19.1 percent, respectively, compared to fiscal 2000. Excluding the after-tax restructuring and asset impairment net credit of $3.6 million taken in fiscal 2000, net earnings and diluted net earnings per share for fiscal 2001 increased 13.8 percent and 20.5 percent, respectively, compared to fiscal 2000. The increase in both net earnings and diluted net earnings per share was primarily due to increases in sales at both Red Lobster and Olive Garden and decreases in restaurant labor as a percent of sales. Diluted net earnings per share also reflected a reduction in average diluted shares outstanding due to the Company's share repurchase activities. SEASONALITY The Company's sales volumes fluctuate seasonally. In fiscal 2002, 2001, and 2000, the Company's sales were highest in the spring, lowest in the fall, and comparable during winter and summer. Holidays, severe weather, storms, and similar conditions may impact sales volumes seasonally in some operating regions. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. IMPACT OF INFLATION For fiscal 2002, 2001, and 2000, management believes that inflation has not 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. CRITICAL ACCOUNTING POLICIES The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company 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 (see Note 1 to the Company's consolidated financial statements). Actual results could differ from those estimates. Critical accounting policies are those that management believes are both most important to the portrayal of the Company's financial condition and operating results, and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. The Company considers the following policies to be most critical in understanding the judgments that are involved in preparing its consolidated financial statements. Land, Buildings, and Equipment All land, buildings, and equipment are recorded at cost less accumulated depreciation. 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. The Company's accounting policies regarding land, buildings, and equipment include judgments by management regarding the estimated useful lives of such assets, the residual values to which the assets are depreciated, and the determination as to what constitutes enhancing the value of or increasing the life of existing assets. These judgments and estimates may produce materially different amounts of depreciation and amortization expense than would be reported if different assumptions were used. As discussed further below, these judgments may also impact the Company's need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized. 4 Impairment of Long-Lived Assets Restaurant sites and certain other assets 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 the assets to the future net cash flows expected to be generated by the assets. 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 other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell, and are included in net assets held for disposal. Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the Company to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge. Self-Insurance Reserves The Company self-insures a significant portion of expected losses under its workers' compensation, employee medical, and general liability programs. Accrued liabilities have been recorded based on the Company's estimates of the ultimate costs to settle incurred and incurred but not reported claims. The Company's accounting policies regarding self-insurance programs include certain management judgments and actuarial assumptions regarding economic conditions, the frequency or severity of claims and claim development patterns, and claim reserve, management, and settlement practices. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs. LIQUIDITY AND CAPITAL RESOURCES Cash flows generated from operating activities provide the Company with a significant source of liquidity. Since substantially all Company sales are for cash and cash equivalents, and accounts payable are generally due in five to 30 days, the Company is able to carry current liabilities in excess of current assets. In addition to cash flows from operations, the Company uses a combination of long-term and short-term borrowings to fund its liquidity needs. The Company manages 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). These ratings are only accurate as of the date of this annual 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. The Company's commercial paper program serves as its primary source of short-term financing. As of May 26, 2002, there were no borrowings outstanding under the program. To support its commercial paper program, the Company has a credit facility with a consortium of banks under which the Company can borrow up to $300 million. The credit facility expires in October 2004 and contains various restrictive covenants, such as maximum debt to capital ratios, but does not contain a prohibition on borrowing in the event of a ratings downgrade. None of these covenants is expected to impact the Company's liquidity or capital resources. As of May 26, 2002, no amounts were outstanding under the credit facility. At May 26, 2002, the Company's long-term debt consisted principally of: (1) $150 million of unsecured 8.375 percent senior notes due in September 2005, (2) $150 million of unsecured 6.375 percent notes due in February 2006, (3) $75 million of unsecured 7.45 percent medium-term notes due in April 2011, (4) $100 million of unsecured 7.125 percent debentures due in February 2016, and (5) an unsecured, variable rate, $39.1 million commercial bank loan due in December 2018 that is used to support two loans from the Company to the Employee Stock Ownership Plan portion of the Darden Savings Plan. In addition, in March 2002, the Company issued $150 million of unsecured 5.75 percent medium-term notes due in March 2007. A portion of the proceeds from the issuance were used to repay short-term debt, and the remaining proceeds are being used to fund working capital 5 needs. Through a shelf registration on file with the Securities and Exchange Commission, the Company has provided for the issuance of an additional $125 million of unsecured debt securities from time to time. The debt securities may bear interest at either fixed or floating rates, and may have maturity dates of nine months or more after issuance. 6 A summary of the Company's contractual obligations and commercial commitments as of May 26, 2002 is as follows (in thousands):
- -------------------------- ------------------------------------------------------------------------------------------- Payments Due by Period - -------------------------- ------------------------------------------------------------------------------------------- - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ Contractual Less than 2-3 4-5 After 5 Obligations Total 1 Year Years Years Years - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ Long-term debt $664,140 $ -- $ -- $450,000 $214,140 - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ Operating leases 259,429 51,951 77,964 55,382 74,132 - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------ Total contractual cash obligations $923,569 $51,951 $77,964 $505,382 $288,272 - -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
- -------------------------- --------------- --------------------------------------------------------------------------- Amount of Commitment Expiration per Period - -------------------------- --------------- --------------------------------------------------------------------------- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- Total Amounts Other Commercial Committed Less than 2-3 4-5 Over 5 Commitments 1 Year Years Years Years - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- Trade letters of credit $ 9,786 $ 9,786 $ -- $ -- $ -- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- Standby letters of credit (1) 38,608 38,608 -- -- -- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- Guarantees (2) 5,463 1,204 1,285 1,171 1,803 - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- Total commercial commitments $53,857 $49,598 $1,285 $1,171 $1,803 - -------------------------- --------------- ------------------ ------------------ ----------------- ------------------- 1) Includes letters of credit for $30,000 of workers' compensation and general liabilities accrued in the Company's consolidated financial statements; also includes letters of credit for $7,289 of lease payments included in contractual operating lease obligation payments noted above. 2) Consists solely of guarantees associated with sub-leased properties. The Company is not aware of any non-performance under these sub-lease arrangements that would result in the Company having to perform in accordance with the terms of the guarantees.
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 46 percent and 44 percent at May 26, 2002, and May 27, 2001, 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 6.8 times and 6.5 times at May 26, 2002, and May 27, 2001, 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.
(in millions) May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- CAPITAL STRUCTURE - -------------------------------------------------------------------------------------------------------------------- Short-term debt $ -- $ 12.0 Long-term debt 662.5 520.6 - -------------------------------------------------------------------------------------------------------------------- Total debt 662.5 532.6 Stockholders' equity 1,128.9 1,033.3 - -------------------------------------------------------------------------------------------------------------------- Total capital $1,791.4 $1,565.9 ==================================================================================================================== ADJUSTMENTS TO CAPITAL - -------------------------------------------------------------------------------------------------------------------- Leases-debt equivalent $ 294.6 $ 275.1 Adjusted total debt 957.1 807.7 Adjusted total capital 2,086.0 1,841.0 Debt to total capital ratio 37% 34% Adjusted debt to adjusted total capital ratio 46% 44% ====================================================================================================================
The Company's Board of Directors has approved a stock repurchase program that authorizes the Company to repurchase up to 96.9 million shares of the Company's common stock. Net cash flows used by financing activities included the Company's repurchase of 9.0 million shares of its common stock for $209 million in fiscal 2002 compared to 12.7 million shares for $177 million in fiscal 2001 and 17.2 million shares for $202 million in fiscal 2000. As of May 26, 2002, a total of 86.3 million shares have been purchased under the program. The stock repurchase program is used by the Company to offset the dilutive effect of stock option exercises and to increase shareholder value. The repurchased common stock is reflected as a reduction of stockholders' equity. 7 Net cash flows used by investing activities included capital expenditures incurred principally for building new restaurants, replacing equipment, and remodeling existing restaurants. Capital expenditures were $318 million in fiscal 2002, compared to $355 million in fiscal 2001, and $269 million in fiscal 2000. The reduced expenditures in fiscal 2002 resulted primarily from a reduction in renewal and replacement spending at Red Lobster restaurants. The increased expenditures in fiscal 2001 resulted primarily from new restaurant growth. The Company estimates that its fiscal 2003 capital expenditures will approximate $400 million. Net cash flows used by investing activities for fiscal 2002 also included the purchase of $32 million of trust-owned life insurance policies that cover certain Company officers and other key employees. The policies were purchased to offset a portion of the Company's obligations under its non-qualified deferred compensation plan. The Company is not aware of any trends or events that would materially affect its capital requirements or liquidity. The Company believes that its internal cash generating capabilities and borrowings available under its shelf registration for unsecured debt securities and short-term commercial paper program should be sufficient to finance its capital expenditures, stock repurchase program, and other operating activities through fiscal 2003. FINANCIAL CONDITION The Company's current assets at May 26, 2002 totaled $450 million, a 37.0 percent increase over current assets of $328 million at May 27, 2001. The increase resulted primarily from increases in cash and cash equivalents of $91 million and short-term investments of $10 million that resulted principally from the short-term investment of proceeds received from the March 2002 medium-term debt issuance. Inventories also increased by $24 million primarily as a result of opportunistic seafood purchases and purchases in support of upcoming promotions. Other assets of $159 million at May 26, 2002, increased from $109 million at May 27, 2001, primarily as a result of the purchase of $32 million of trust-owned life insurance policies during fiscal 2002 as well as an increase in capitalized costs associated with software improvements. Current liabilities increased by $47 million compared to fiscal 2001, primarily as a result of increases in accrued income taxes, gift card and gift certificate payables, and employee benefit related accruals. Net non-current deferred income tax liabilities of $118 million at May 26, 2002, increased from $91 million at May 27, 2001, primarily as a result of current income tax deductions for certain capitalized software costs, smallwares, and equipment. 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 (see Notes 1 and 8 of the Notes to Consolidated Financial Statements). 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 26, 2002, the Company's potential losses in future net earnings resulting from changes in foreign currency exchange rate instruments, commodity instruments, and floating rate debt interest rate exposures were approximately $1 million over a period of one year. The Company issued $150 million of new long-term fixed rate debt during fiscal 2002. 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 $39 million. The fair value of the Company's long-term fixed rate debt during fiscal 2002 averaged $522 million, with a high of $643 million and a low of $470 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. 8 FUTURE APPLICATION OF ACCOUNTING STANDARDS In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and resolves significant implementation issues that had evolved since the issuance of SFAS No. 121. SFAS No. 144 also establishes a single accounting model for long-lived assets to be disposed of by sale. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and its provisions are generally to be applied prospectively. The Company adopted SFAS No. 144 in the first quarter of fiscal 2003. Adoption of SFAS No. 144 did not materially impact the Company's consolidated financial statements. FORWARD-LOOKING STATEMENTS Certain statements included in this report and other materials filed or to be filed by the Company with the SEC (as well as information included in oral or written statements made or to be made by the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words or phrases such as "believe", "plan", "will", "expect", "intend", "estimate", and "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, capital expenditures, and business development activities; and the Company's long-term goals of increasing market share, expanding margins on incremental sales, and earnings growth. These forward-looking statements are based on assumptions concerning important factors, risks, and uncertainties that could significantly affect anticipated results in the future and, accordingly, could cause the actual results to differ materially from those expressed in the forward-looking statements. These factors, risks, and uncertainties include, but are not limited to: o the highly competitive nature of the restaurant industry, especially pricing, service, location, personnel, and type and quality of food; o economic, market, and other conditions, including changes in consumer preferences, demographic trends, weather conditions, construction costs, and the cost and availability of borrowed funds; o changes in the cost or availability of food, real estate, and other items, and the general impact of inflation; o the availability of desirable restaurant locations; o government regulations, including those relating to zoning, land use, environmental matters, and liquor licenses; and o 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. 9 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 accounting principles generally accepted in the United States of America, 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 Company's consolidated financial statements. Their report follows. /s/ Joe R. Lee Joe R. Lee Chairman of the Board and Chief Executive Officer 10 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 26, 2002, and May 27, 2001, and the related consolidated statements of earnings, changes in stockholders' equity and accumulated other comprehensive income, and cash flows for each of the years in the three-year period ended May 26, 2002. 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 26, 2002, and May 27, 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended May 26, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Orlando, Florida June 18, 2002 11
CONSOLIDATED STATEMENTS OF EARNINGS Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) May 26, 2002 May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Sales $4,368,701 $3,992,419 $3,675,461 Costs and Expenses: Cost of sales: Food and beverage 1,384,481 1,302,926 1,199,709 Restaurant labor 1,373,416 1,261,837 1,181,156 Restaurant expenses 626,702 559,670 510,727 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $3,384,599 $3,124,433 $2,891,592 Selling, general, and administrative 420,947 389,240 363,041 Depreciation and amortization 165,829 146,864 130,464 Interest, net 36,585 30,664 22,388 Restructuring and asset impairment credit, net (2,568) -- (5,931) - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $4,005,392 $3,691,201 $3,401,554 - -------------------------------------------------------------------------------------------------------------------- Earnings before Income Taxes 363,309 301,218 273,907 Income Taxes 125,521 104,218 97,202 - -------------------------------------------------------------------------------------------------------------------- Net Earnings $ 237,788 $ 197,000 $ 176,705 ==================================================================================================================== Net Earnings per Share: Basic $ 1.36 $ 1.10 $ 0.92 Diluted $ 1.30 $ 1.06 $ 0.89 ==================================================================================================================== Average Number of Common Shares Outstanding: Basic 174,700 179,600 192,800 Diluted 183,500 185,600 197,800 ====================================================================================================================
See accompanying notes to consolidated financial statements. 12
CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------------------------------------------- (In thousands) May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 152,875 $ 61,814 Short-term investments 9,904 -- Receivables 29,089 32,870 Inventories 172,413 148,429 Net assets held for disposal 10,047 10,087 Prepaid expenses and other current assets 23,076 26,942 Deferred income taxes 52,127 48,000 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets $ 449,531 $ 328,142 Land, Buildings, and Equipment 1,920,768 1,779,515 Other Assets 159,437 108,877 - -------------------------------------------------------------------------------------------------------------------- Total Assets $ 2,529,736 $ 2,216,534 ==================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 160,064 $ 156,859 Short-term debt -- 12,000 Current portion of long-term debt -- 2,647 Accrued payroll 87,936 82,588 Accrued income taxes 68,504 47,698 Other accrued taxes 30,474 27,429 Other current liabilities 254,036 225,037 - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities $ 601,014 $ 554,258 Long-term Debt 662,506 517,927 Deferred Income Taxes 117,709 90,782 Other Liabilities 19,630 20,249 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities $ 1,400,859 $ 1,183,216 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock and surplus, no par value. Authorized 500,000 shares; issued 258,426 and 253,948 shares, respectively; outstanding 172,135 and 176,069 shares, respectively $ 1,474,054 $1,405,799 Preferred stock, no par value. Authorized 25,000 shares; none issued and outstanding -- -- Retained earnings 760,684 532,121 Treasury stock, 86,291 and 77,879 shares, at cost (1,044,915) (840,254) Accumulated other comprehensive income (12,841) (13,102) Unearned compensation (46,108) (49,322) Officer notes receivable (1,997) (1,924) - -------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity $ 1,128,877 $1,033,318 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 2,529,736 $2,216,534 ====================================================================================================================
See accompanying notes to consolidated financial statements. 13
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME - ----------------------------------------------------------------------------------------------------------------------- Common Accumulated Stock Other Officer Total and Retained Treasury Comprehensive Unearned Notes Stockholders' (In thousands, except per share Surplus Earnings Stock Income Compensation Receivable Equity data) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Balance at May 30, 1999 $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $(1,687) $ 962,349 - ----------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 176,705 176,705 Other comprehensive income, foreign currency adjustment (342) (342) --------- Total comprehensive income 176,363 Cash dividends declared ($0.053 per share) (10,134) (10,134) Stock option exercises (1,730 shares) 10,212 10,212 Issuance of restricted stock (245 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 benefits credited to equity 5,506 5,506 Proceeds from issuance of equity put options 1,814 1,814 Purchases of common stock for treasury (17,230 shares) (202,105) (202,105) Issuance of treasury stock under Employee Stock Purchase Plan (365 shares) 1,741 2,170 3,911 Issuance of officer notes, net (181) (181) - ----------------------------------------------------------------------------------------------------------------------- Balance at May 28, 2000 $1,351,707 $344,579 $(666,837) $(12,457) $(56,522) $(1,868) $958,602 - ----------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 197,000 197,000 Other comprehensive income, foreign currency adjustment (645) (645) ---------- Total comprehensive income 196,355 ($0.053 per share) (9,458) (9,458) Stock option exercises (4,670 shares) 33,158 33,158 Issuance of restricted stock 443 shares), net of for feiture adjustments 3,986 1,035 (5,109) (88) Earned compensation 4,164 4,164 ESOP note receivable repayments 8,145 8,145 Income tax benefits credited to equity 15,287 15,287 Purchases of common stock for treasury (12,660 shares) (176,511) (176,511) Issuance of treasury stock under Employee Stock Purchase Plan and other plans (336 shares) 1,661 2,059 3,720 Issuance of officer notes, net (56) (56) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Balance at May 27, 2001 $1,405,799 $532,121 $(840,254) $(13,102) $(49,322) $(1,924) $1,033,318 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Comprehensive income: Net earnings 237,788 237,788 Other comprehensive income: Foreign currency adjustment 169 169 Change in fair value of derivatives, net of tax of $234 380 380 Minimum pension liability adjustment, net of tax benefit of $177 (288) (288) -------- Total comprehensive income 238,049 Cash dividends declared ($0.053 per share) (9,225) (9,225) Stock option exercises (4,310 shares) 34,742 1,364 36,106 Issuance of restricted stock (374shares), net of forfeiture adjustments 5,666 815 (6,493) (12) Earned compensation 4,392 4,392 ESOP note receivable repayments 5,315 5,315 Income tax benefits credited to equity 24,989 24,989 Purchases of common stock for treasury (8,972 shares) (208,578) (208,578) Issuance of treasury stock under Employee Stock Purchase Plan and other plans (290 shares) 2,858 1,738 4,596 Issuance of officer notes, net (73) (73) - ----------------------------------------------------------------------------------------------------------------------- Balance at May 26, 2002 $1,474,054 $760,684$(1,044,915) $(12,841) $(46,108) $(1,997) $1,128,877 - -----------------------------------------------------------------------------------------------------------------------
14 See accompanying notes to consolidated financial statements. 15
CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- (In thousands) May 26, 2002 May 27, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Operating Activities Net earnings $237,788 $ 197,000 $ 176,705 Adjustments to reconcile net earnings to cash flows: Depreciation and amortization 165,829 146,864 130,464 Amortization of unearned compensation and loan costs 7,578 7,031 5,895 Change in current assets and liabilities 49,604 41,740 2,472 Change in other liabilities (619) (642) (371) Loss on disposal of land, buildings, and equipment 1,803 1,559 2,683 Change in cash surrender value of trust-owned life insurance 743 -- -- Deferred income taxes 22,800 11,750 24,609 Income tax benefits credited to equity 24,989 15,287 5,506 Non-cash restructuring and asset impairment credit, net (2,568) -- (5,931) Other, net 195 (19) 594 - -------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities $ 508,142 $ 420,570 $ 342,626 - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Investing Activities Purchases of land, buildings, and equipment (318,392) (355,139) (268,946) Increase in other assets (24,741) (10,730) (1,820) Purchase of trust-owned life insurance (31,500) -- -- Proceeds from disposal of land, buildings, and equipment (including net assets held for disposal) 10,741 13,492 20,998 Purchases of short-term investments (9,904) -- -- - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Investing Activities $ (373,796) $ (352,377) $(249,768) - -------------------------------------------------------------------------------------------------------------------- Cash Flows - Financing Activities Proceeds from issuance of common stock 40,520 36,701 13,944 Dividends paid (9,225) (9,458) (10,134) Purchases of treasury stock (208,578) (176,511) (202,105) ESOP note receivable repayments 5,315 8,145 7,600 (Decrease) increase in short-term debt (12,000) (103,000) 91,500 Proceeds from issuance of long-term debt 149,655 224,454 -- Repayment of long-term debt (7,962) (10,658) (9,986) Payment of loan costs (1,010) (2,154) (349) Proceeds from issuance of equity put options -- -- 1,814 - -------------------------------------------------------------------------------------------------------------------- Net Cash Used by Financing Activities $ (43,285) $ (32,481) $(107,716) - -------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 91,061 35,712 (14,858) Cash and Cash Equivalents - Beginning of Year 61,814 26,102 40,960 - -------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents - End of Year $ 152,875 $ 61,814 $ 26,102 ==================================================================================================================== Cash Flow from Changes in Current Assets and Liabilities Receivables 3,781 (4,908) (7,706) Inventories (23,984) (6,242) (1,485) Prepaid expenses and other current assets 1,987 (289) (4,184) Accounts payable 3,205 16,372 (4,238) Accrued payroll 5,348 4,783 3,540 Accrued income taxes 20,806 14,442 16,712 Other accrued taxes 3,045 1,905 (441) Other current liabilities 35,416 15,677 274 - -------------------------------------------------------------------------------------------------------------------- Change in Current Assets and Liabilities $ 49,604 $ 41,740 $ 2,472 ====================================================================================================================
See accompanying notes to consolidated financial statements. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share data) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations and Principles of Consolidation The consolidated financial statements include the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries (the Company). The Company owns and operates various restaurant concepts located in the United States and Canada with no franchising. The Company also licenses 33 restaurants in Japan. All significant intercompany balances and transactions have been eliminated in consolidation. Fiscal Year The Company's fiscal year ends on the last Sunday in May. Fiscal 2002, 2001, and 2000 each consisted of 52 weeks. Cash Equivalents Cash equivalents include highly liquid investments such as U.S. treasury bills, taxable municipal bonds, and money market funds that have a maturity of three months or less. Amounts receivable from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction. Short-Term Investments Short-term investments include a U.S. treasury bill that is classified as a held-to-maturity security because the Company has the positive intent and ability to hold the security to maturity. The security is valued at amortized cost, which approximates fair value, and matures in September 2002. 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 less accumulated depreciation. 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. Depreciation expense amounted to $162,784, $145,058, and $129,094, in fiscal 2002, 2001, and 2000, respectively. Capitalized Software Costs Capitalized software is recorded at cost less accumulated amortization. Capitalized software is amortized using the straight-line method over estimated useful lives ranging from three to ten years. The cost of capitalized software at May 26, 2002, and May 27, 2001, amounted to $38,621 and $17,252, respectively. The increase for fiscal 2002 relates principally to capitalized costs associated with new enterprise reporting and human resource management systems. Accumulated amortization as of May 26, 2002, and May 27, 2001, amounted to $5,006 and $2,886, respectively. Trust-Owned Life Insurance In August 2001, the Company caused a trust, that it previously had established, to purchase life insurance policies covering certain Company officers and other key employees (trust-owned life insurance or TOLI). The trust is the owner and sole beneficiary of the TOLI policies. The policies, which had an initial cash surrender value of $31,500, were purchased to offset a portion of the Company's obligations under its non-qualified deferred compensation plan. The cash surrender value of the policies is included in other assets while changes in cash surrender value are included in selling, general, and administrative expenses. Liquor Licenses The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as 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. 17 Impairment of Long-Lived Assets Restaurant sites and certain other assets 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 the assets to the future net cash flows expected to be generated by the assets. 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 other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell, and are included in net assets held for disposal. Unearned Revenues Unearned revenues represent the Company's liability for gift cards and certificates that have been sold but not yet redeemed and are recorded at their expected redemption value. When the gift cards and certificates are redeemed, the Company recognizes restaurant sales and reduces the deferred liability. Unearned revenues are included in other current liabilities and, at May 26, 2002, and May 27, 2001, amounted to $56,632 and $38,145, respectively. Self-Insurance Reserves The Company self-insures a significant portion of expected losses under its workers' compensation, employee medical, and general liability programs. Accrued liabilities have been recorded based on the Company's estimates of the ultimate costs to settle incurred and incurred but not reported claims. 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. Income tax benefits credited to equity relate to tax benefits associated with amounts that are deductible for income tax purposes but do not affect net earnings. These benefits are principally generated from employee exercises of non-qualified stock options and vesting of employee restricted stock awards. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at fair value. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000. The Company adopted SFAS No. 133 and SFAS No. 138 on May 28, 2001. There were no transition adjustments that were required to be recognized as a result of the adoption of these new standards, and therefore, adoption of these standards did not materially impact the Company's consolidated financial statements. The Company uses financial and commodities derivatives in the management of interest rate and commodities pricing risks that are inherent in its business operations. The Company's use of derivative instruments is currently limited to interest rate hedges and commodities futures contracts. These instruments are structured as hedges of forecasted transactions or the variability of cash flow to be paid related to a recognized asset or liability (cash flow hedges). The Company may also use financial derivatives as part of its stock repurchase program, which is more fully described in Note 10. No derivative instruments are entered into for trading or speculative purposes. All derivatives are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the Company documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the various hedge transactions. This process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheet or to specific forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. 18 Changes in the fair value of derivatives that are highly effective and that are designated and qualify as cash flow hedges are recorded in other comprehensive income until earnings are affected by the variability in cash flows of the designated hedged item. Where applicable, the Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item or the derivative is terminated. Any changes in the fair value of a derivative where hedge accounting has been discontinued or is ineffective are recognized in earnings. Cash flows related to derivatives are included in operating activities. Pre-Opening Expenses Non-capital expenditures associated with opening new restaurants are expensed as incurred. Advertising Production costs of commercials and programming are charged to operations in the fiscal year the advertising is first aired. The costs of other advertising, promotion, and marketing programs are charged to operations in the fiscal year incurred. Advertising expense amounted to $187,950, $177,998, and $165,590, in fiscal 2002, 2001, and 2000, respectively. Stock-Based Compensation 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 No. 123, the Company has elected to account for its stock-based compensation plans under an intrinsic value method that requires compensation expense to be recorded only if, on the date of grant, the current market price of the Company's common stock exceeds the exercise price the employee must pay for the stock. The Company's policy is to grant stock options at the fair market value of the underlying stock at the date of grant. The Company has adopted the disclosure requirements of SFAS No. 123. Restricted stock and restricted stock unit (RSU) awards are recognized as unearned compensation, a component of stockholders' equity, based on the fair market value of the Company's common stock on the award date. These amounts are amortized to compensation expense over the vesting period using assumed forfeiture rates for different types of awards. Compensation expense is adjusted in future periods if actual forfeiture rates differ from initial estimates. Net Earnings Per Share Basic net earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding for the reporting period. Diluted net 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 outstanding. Options do not impact the numerator of the diluted net earnings per share computation. Options to purchase 161,220, 3,618,900, and 5,379,300 shares of common stock were excluded from the calculation of diluted net earnings per share for fiscal 2002, 2001, and 2000, respectively, because their exercise prices exceeded the average market price of common shares for the period. Comprehensive Income Comprehensive income includes net earnings and other comprehensive income items that are excluded from net earnings under accounting principles generally accepted in the United States of America. Other comprehensive income items include foreign currency translation adjustments, the effective unrealized portion of changes in the fair value of cash flow hedges, and amounts associated with minimum pension liability adjustments. Foreign Currency Translation The Canadian dollar is the functional currency for the Company'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, which amounted to $33 and $1, respectively, are included in the consolidated statements of earnings for each period. 19 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Segment Reporting As of May 26, 2002, the Company operated 1,211 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 operations into a single reporting segment. Reclassifications Certain reclassifications have been made to prior year amounts to conform with current year presentation. Accounting Change In July 2000, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on EITF Issue 00-14, "Accounting for Certain Sales Incentives." EITF Issue 00-14 is effective for all annual or interim financial statements for periods beginning after December 15, 2001. The Company adopted EITF Issue 00-14 in the fourth quarter of fiscal 2002. EITF Issue 00-14 addresses the recognition, measurement, and income statement classification for sales incentives offered to customers. Sales incentives include discounts, coupons, and generally any other offers that entitle a customer to receive a reduction in the price of a product by submitting a claim for a refund or rebate. Under EITF Issue 00-14, the reduction in or refund of the selling price of the product resulting from any sales incentives should be classified as a reduction of revenue. Prior to adopting this pronouncement, the Company recognized sales incentives as either selling, general, and administrative expenses or restaurant expenses. As a result of adopting EITF Issue 00-14, sales incentives were reclassified as a reduction of sales for all fiscal periods presented. Amounts reclassified were $28,847, $28,738, and $25,795, in fiscal 2002, 2001, and 2000, respectively. This pronouncement did not have any impact on net earnings. Future Application of Accounting Standards In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and resolves significant implementation issues that had evolved since the issuance of SFAS No. 121. SFAS No. 144 also establishes a single accounting model for long-lived assets to be disposed of by sale. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and its provisions are generally to be applied prospectively. The Company adopted SFAS No. 144 in the first quarter of fiscal 2003. Adoption of SFAS No. 144 did not materially impact the Company's consolidated financial statements. NOTE 2 - ACCOUNTS RECEIVABLE The Company's accounts receivable is primarily comprised of receivables from national storage and distribution companies with which the Company contracts to provide services that are billed to the Company on a per-case basis. In connection with these services, certain Company inventory items are conveyed to these storage and distribution companies to transfer ownership and risk of loss prior to delivery of the inventory to our restaurants. These items are reacquired by the Company 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 $21,083 and $24,996 at May 26, 2002, and May 27, 2001, respectively. The allowance for doubtful accounts associated with all Company receivables amounted to $330 and $350 at May 26, 2002, and May 27, 2001, respectively. 20 NOTE 3 - RESTRUCTURING AND ASSET IMPAIRMENT CREDIT, NET Darden recorded asset impairment charges of $2,629 and $158,987 in fiscal 2000 and 1997, respectively, representing the difference between the fair value and carrying value of impaired assets. The asset impairment charges related 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 fiscal 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. All other activities associated with these restructuring actions, including disposal of closed owned properties and lease buy-outs related to closed leased properties, were substantially completed during fiscal 2002. During fiscal 2002 and 2000, the Company reversed portions of its 1997 restructuring liability totaling $2,568 and $8,560, respectively. The fiscal 2002 and 2000 reversals primarily resulted from favorable lease terminations. No restructuring or asset impairment expense or credit was charged to operating results during fiscal 2001. The components of the restructuring and asset impairment credit, net, and the after-tax and net earnings per share effects of these items for fiscal 2002 and 2000 are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2002 2000 - -------------------------------------------------------------------------------------------------------------------- Carrying costs of buildings and equipment prior to disposal and employee severance costs $ -- $ -- Lease buy-out provisions 2,568 8,560 - -------------------------------------------------------------------------------------------------------------------- Subtotal 2,568 8,560 Impairment of restaurant properties -- (2,629) - -------------------------------------------------------------------------------------------------------------------- Total restructuring and asset impairment credit, net 2,568 5,931 Less related income taxes (991) (2,308) - -------------------------------------------------------------------------------------------------------------------- Restructuring and asset impairment credit, net, net of income taxes 1,577 3,623 - -------------------------------------------------------------------------------------------------------------------- Net earnings per share effect - basic and diluted $ 0.01 $ 0.03 ====================================================================================================================
The restructuring liability is included in other current liabilities in the accompanying consolidated balance sheets. As of May 26, 2002, approximately $43,850 of carrying, employee severance, and lease buy-out costs associated with the 1997 restructuring action had been paid and charged against the restructuring liability. The remaining liability balance of $1,946 relates primarily to lease buy-out costs associated with one closed leased property in which the lease term does not expire until March 2011. A summary of restructuring liability activity for fiscal 2002 and 2001 is as follows:
Fiscal Year - ---------------------------------------------------------------------------- ------------------ -------------------- 2002 2001 - ---------------------------------------------------------------------------- ------------------ -------------------- Beginning balance $ 5,798 $ 8,564 Non-cash adjustments: Restructuring credits (2,568) -- Cash payments: Carrying costs and employee severance payments (860) (1,364) Lease payments including lease buy-outs, net (424) (1,402) - ---------------------------------------------------------------------------- ------------------ -------------------- Ending balance $ 1,946 $ 5,798 ============================================================================ ================== ====================
During fiscal 2000, asset impairment charges of $12,000 included in the beginning fiscal 2000 restructuring liability were reclassified to reduce the carrying value of land. This reclassification related to asset impairment charges recorded in 1997 for long-lived assets associated with Canadian restaurants. 21 NOTE 4 - LAND, BUILDINGS, AND EQUIPMENT The components of land, buildings, and equipment are as follows:
May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- Land $ 464,893 $ 426,171 Buildings 1,719,778 1,562,107 Equipment 830,404 759,812 Construction in progress 123,987 128,976 - -------------------------------------------------------------------------------------------------------------------- Total land, buildings, and equipment 3,139,062 2,877,066 Less accumulated depreciation (1,218,294) (1,097,551) - -------------------------------------------------------------------------------------------------------------------- Net land, buildings, and equipment $1,920,768 $ 1,779,515 ====================================================================================================================
NOTE 5 - OTHER ASSETS The components of other assets are as follows:
May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- Prepaid pension costs $ 48,262 $ 45,624 Capitalized software costs 33,615 14,366 Trust-owned life insurance 30,757 -- Liquor licenses 19,405 18,642 Prepaid interest and loan costs 17,895 19,768 Miscellaneous 9,503 10,477 - -------------------------------------------------------------------------------------------------------------------- Total other assets $ 159,437 $ 108,877 ====================================================================================================================
NOTE 6 - SHORT-TERM DEBT Short-term debt at May 26, 2002, and May 27, 2001, consisted of $0 and $12,000, respectively, of unsecured commercial paper borrowings with original maturities of one month or less. The debt bore an interest rate of 4.3 percent at May 27, 2001. NOTE 7 - LONG-TERM DEBT The components of long-term debt are as follows:
May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- 8.375% senior notes due September 2005 $ 150,000 $ 150,000 6.375% notes due February 2006 150,000 150,000 5.75% medium-term notes due March 2007 150,000 -- 7.45% medium-term notes due April 2011 75,000 75,000 7.125% debentures due February 2016 100,000 100,000 ESOP loan with variable rate of interest (2.17% at May 26, 2002) due December 2018 39,140 44,455 Other -- 2,647 - -------------------------------------------------------------------------------------------------------------------- Total long-term debt 664,140 522,102 Less issuance discount (1,634) (1,528) - -------------------------------------------------------------------------------------------------------------------- Total long-term debt less issuance discount 662,506 520,574 Less current portion -- (2,647) - -------------------------------------------------------------------------------------------------------------------- Long-term debt, excluding current portion $ 662,506 $ 517,927 ====================================================================================================================
22 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, the Company 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, the Company issued $75,000 of unsecured 7.45 percent medium-term notes due in April 2011. In March 2002, the Company issued $150,000 of unsecured 5.75 percent medium-term notes due in March 2007. As of May 26, 2002, the Company's shelf registration provides for the issuance of an additional $125,000 of unsecured debt securities. 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. 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. 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 26, 2002, and May 27, 2001, no borrowings were outstanding under this credit facility. The aggregate maturities of long-term debt for each of the five fiscal years subsequent to May 26, 2002, and thereafter are $0 in 2003 through 2005, $300,000 in 2006, $150,000 in 2007, and $214,140 thereafter. NOTE 8 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company uses interest rate related derivative instruments to manage its exposure on its debt instruments, as well as commodities derivatives to manage its exposure to commodity price fluctuations. By using these instruments, the Company exposes itself, from time to time, to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. The Company minimizes this credit risk by entering into transactions with high quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates or commodity prices. The Company minimizes this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. 23 Natural Gas and Coffee Futures Contracts During fiscal 2002, the Company entered into futures contracts to reduce the risk of natural gas and coffee price fluctuations. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives' fair value are not included in current earnings but are reported as other comprehensive income. These changes in fair value are subsequently reclassified into earnings when the natural gas and coffee are purchased and used by the Company in its operations. Net losses of $276 related to these derivatives were recognized in earnings during fiscal 2002. It is expected that $413 of net gains related to these contracts at May 26, 2002, will be reclassified from accumulated other comprehensive income into food and beverage costs or restaurant expenses during the next 12 months. To the extent these derivatives are not effective, changes in their fair value are immediately recognized in current earnings. Outstanding derivatives are included in other current assets or other current liabilities. As of May 26, 2002, the maximum length of time over which the Company is hedging its exposure to the variability in future natural gas and coffee cash flows is six months and seven months, respectively. No gains or losses were reclassified into earnings during fiscal 2002 as a result of the discontinuance of natural gas and coffee cash flow hedges. Interest Rate Lock Agreement During fiscal 2002, the Company entered into a treasury interest rate lock agreement (treasury lock) to hedge the risk that the cost of a future issuance of fixed rate debt may be adversely affected by interest rate fluctuations. The treasury lock, which had a $75,000 notional principal amount of indebtedness, was used to hedge a portion of the interest payments associated with $150,000 of debt subsequently issued in March 2002. The treasury lock was settled at the time of the related debt issuance with a net gain of $267 being recognized in other comprehensive income. The net gain on the treasury lock is being amortized into earnings as an adjustment to interest expense over the same period in which the related interest costs on the new debt issuance are being recognized in earnings. Amortization of $67 was recognized in earnings as an adjustment to interest expense during fiscal 2002. It is expected that $53 of this gain will be recognized in earnings as an adjustment to interest expense during the next 12 months. 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 7). 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. Short-term investments are carried at amortized cost, which approximates fair value. 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 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $152,875 $152,875 $ 61,814 $ 61,814 Short-term investments 9,904 9,904 -- -- Short-term debt -- -- 12,000 12,000 Total long-term debt 662,506 680,115 520,574 513,392 - --------------------------------------------------------------------------------------------------------------------
24 NOTE 10 - STOCKHOLDERS' EQUITY Treasury Stock The Company's Board of Directors has approved a stock repurchase program that authorizes the Company to repurchase up to 96.9 million shares of the Company's common stock. In fiscal 2002, 2001, and 2000, the Company purchased treasury stock totaling $208,578, $176,511, and $202,105, respectively. As of May 26, 2002, a total of 86.3 million shares have been purchased under the program. The Company's stock repurchase program is used by the Company to offset the dilutive effect of stock option exercises and to increase shareholder value. The repurchased common stock is reflected as a reduction of stockholders' equity. 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 the Company's common stock to the Company, at a specified price, if the holder exercises the option. In fiscal 2000, the Company issued put options for 2,625,000 shares for $1,814 in premiums. At May 28, 2000, put options for 375,000 shares were outstanding. No put options were issued in fiscal 2002 or 2001 or outstanding at May 26, 2002 or May 27, 2001. Stock Purchase/Loan Program The Company has share ownership guidelines for its executive management. To assist management in meeting these guidelines, the Company implemented the 1998 Stock Purchase/Loan Program (1998 Program) under its Stock Option and Long-Term Incentive Plan of 1995. The 1998 Program provides loans to executives and awards two options for every new share purchased, up to a maximum total share value equal to a designated percentage of the executive's base compensation. Loans are full recourse and interest bearing, with a maximum principal amount of 75 percent of the value of the stock purchased. The stock purchased is held on deposit with the Company until the loan is repaid. The interest rate for loans under the 1998 Program is fixed and is equal to the applicable federal rate for mid-term loans with semi-annual compounding for the month in which the loan originates. Interest is payable on a weekly basis. Loan principal is payable in installments with 25 percent, 25 percent, and 50 percent of the total loan due at the end of the fifth, sixth, and seventh years of the loan. The Company accounts for outstanding officer notes receivable as a reduction of stockholders' equity. Stockholders' Rights Plan Under the Company's Rights Agreement, as amended, each share of the Company's common stock has associated with it two-thirds of a right to purchase one-hundredth of a share of the Company's Series A Participating Cumulative Preferred Stock at a purchase price of $62.50, subject to adjustment under certain circumstances to prevent dilution. The number of rights associated with each share of the Company's common stock reflects an adjustment resulting from the Company's three-for-two stock split in May 2002. 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 of Directors under certain circumstances and expire on May 24, 2005. Stock Split On March 21, 2002, the Company's Board of Directors declared a three-for-two stock split of the Company's common stock. The stock split was effected in the form of a 50 percent stock dividend which was distributed to stockholders on May 1, 2002, for all stockholders of record as of the close of business on April 10, 2002. In connection with the stock split, the number of common shares reserved for issuance or subject to issuance under the Company's stock option, stock grant, and other plans was proportionately increased. The total number of common and preferred shares authorized for issuance under the Company's Articles of Incorporation remained the same. All applicable references to number of shares and per share amounts of common stock have been adjusted to reflect the stock split. 25 Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) are as follows:
May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- Foreign currency translation adjustment $(12,933) $(13,102) Unrealized gains on derivatives 380 -- Minimum pension liability adjustment (288) -- - -------------------------------------------------------------------------------------------------------------------- Total accumulated other comprehensive income (loss) $(12,841) $(13,102) ====================================================================================================================
Reclassification adjustments associated with pre-tax net derivative losses realized in net earnings for fiscal 2002, 2001, and 2000 amounted to $209, $0, and $0, respectively. NOTE 11- LEASES An analysis of rent expense incurred under operating leases is as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Restaurant minimum rent $43,113 $40,007 $38,818 Restaurant percentage rent 3,550 3,163 2,183 Restaurant equipment minimum rent 8,386 8,388 8,267 Restaurant rent averaging expense (518) (510) (473) Transportation equipment 2,481 2,320 1,946 Office equipment 1,526 1,323 1,090 Office space 1,387 1,020 597 Warehouse space 237 227 227 - -------------------------------------------------------------------------------------------------------------------- Total rent expense $60,162 $55,938 $52,655 ====================================================================================================================
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. Many of the Company's leases have renewal periods totaling five to 20 years, exercisable at the option of the Company, and 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 fiscal years subsequent to May 26, 2002, and thereafter are: $51,951 in 2003, $41,637 in 2004, $36,327 in 2005, $30,605 in 2006, $24,777 in 2007, and $74,132 thereafter, for a cumulative total of $259,429. NOTE 12 - INTEREST, NET The components of interest, net, are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Interest expense $41,493 $35,196 $24,999 Capitalized interest (3,653) (3,671) (1,910) Interest income (1,255) (861) (701) - -------------------------------------------------------------------------------------------------------------------- Interest, net $36,585 $30,664 $22,388 ====================================================================================================================
Capitalized interest was computed using the Company's borrowing rate. The Company paid $31,027, $24,281, and $19,834 for interest (excluding amounts capitalized) in fiscal 2002, 2001, and 2000, respectively. 26 NOTE 13 - INCOME TAXES The components of earnings before income taxes and the provision for income taxes thereon are as follows:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Earnings before income taxes: U.S. $ 359,947 $ 296,160 $ 269,802 Canada 3,362 5,058 4,105 - -------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 363,309 $ 301,218 $ 273,907 - -------------------------------------------------------------------------------------------------------------------- Income taxes: Current: Federal $ 88,063 $ 79,285 $ 61,528 State and local 14,582 13,049 10,861 Canada 133 134 204 - -------------------------------------------------------------------------------------------------------------------- Total current $ 102,778 $ 92,468 $ 72,593 - -------------------------------------------------------------------------------------------------------------------- Deferred (principally U.S.) 22,743 11,750 24,609 - -------------------------------------------------------------------------------------------------------------------- Total income taxes $ 125,521 $ 104,218 $ 97,202 ====================================================================================================================
During fiscal 2002, 2001, and 2000, the Company paid income taxes of $56,839, $63,893, and $53,688, 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 - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefits 3.1 3.1 3.3 Benefit of federal income tax credits (3.9) (4.1) (3.9) Other, net 0.4 0.6 1.1 - -------------------------------------------------------------------------------------------------------------------- Effective income tax rate 34.6% 34.6% 35.5% ====================================================================================================================
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
May 26, 2002 May 27, 2001 - -------------------------------------------------------------------------------------------------------------------- Accrued liabilities $ 19,052 $ 14,899 Compensation and employee benefits 52,804 50,902 Asset disposition and restructuring liabilities 2,283 5,306 Net assets held for disposal 301 937 Other 2,392 2,436 - -------------------------------------------------------------------------------------------------------------------- Gross deferred tax assets $ 76,832 $ 74,480 - -------------------------------------------------------------------------------------------------------------------- Buildings and equipment (93,752) (73,578) Prepaid pension costs (18,096) (17,376) Prepaid interest (3,478) (3,812) Deferred rent and interest income (12,496) (13,474) Capitalized software and other assets (12,127) (5,840) Other (2,465) (3,182) - -------------------------------------------------------------------------------------------------------------------- Gross deferred tax liabilities $(142,414) $ (117,262) - -------------------------------------------------------------------------------------------------------------------- Net deferred tax liabilities $ (65,582) $ (42,782) ====================================================================================================================
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 26, 2002, and May 27, 2001, no valuation allowance has been recognized for 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. 27 NOTE 14 - RETIREMENT PLANS Defined Benefit Plans and Post-Retirement Benefit Plan Substantially all of the Company's employees are eligible to participate in a retirement plan. The Company sponsors non-contributory defined benefit pension plans for its salaried employees, in which benefits are based on various formulas that include years of service and compensation factors, and a group of hourly employees, in which a frozen level of benefits is provided. The Company's policy is to fund, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended. The Company also sponsors a contributory post-retirement benefit plan that provides health care benefits to its salaried retirees. 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, 2002 and 2001:
Defined Benefit Plans (1) Post-Retirement Benefit Plan - -------------------------------------------------- -------------- --------------- ---- --------------- --------------- 2002 2001 2002 2001 - -------------------------------------------------- -------------- --------------- ---- --------------- --------------- - -------------------------------------------------- -------------- --------------- ---- --------------- --------------- Change in Benefit Obligation: Benefit obligation at beginning of period $ 97,339 $ 82,634 $ 6,739 $ 5,663 Service cost 3,586 3,488 291 246 Interest cost 7,145 6,450 500 448 Participant contributions -- -- 91 96 Benefits paid (4,412) (3,765) (214) (159) Actuarial loss 7,497 8,532 1,949 445 ----------- ----------- --------- ---------- Benefit obligation at end of period $ 111,155 $ 97,339 $ 9,356 $ 6,739 ======== ========= ======== ======== Change in Plan Assets: Fair value at beginning of period $ 120,042 $115,872 $ -- $ -- Actual return on plan assets (6,097) 7,894 -- -- Employer contributions 41 41 123 63 Participant contributions -- -- 91 96 Benefits paid (4,412) (3,765) (214) (159) ---------- ---------- --------- ----------- Fair value at end of period $ 109,574 $120,042 $ -- $ -- ======== ======== =========== ============ Reconciliation of the Plan's Funded Status: Funded status at end of year $ (1,581) $ 22,703 $ (9,356) $ (6,739) Unrecognized transition asset -- (642) -- -- Unrecognized prior service cost (1,392) (1,849) 47 65 Unrecognized actuarial loss (gain) 47,762 22,857 1,579 (371) Contributions for March to May 10 10 44 28 ------------- ------------ ------------ ----------- Prepaid (accrued) benefit costs $ 44,799 $ 43,079 $ (7,686) $ (7,017) ========= ========= ========= ========= Components of the Consolidated Balance Sheets: Prepaid benefit costs $ 48,262 $ 45,624 $ -- $ -- Accrued benefit costs (3,929) (2,545) (7,686) (7,017) Accumulated other comprehensive income 466 -- -- -- ------------ -------------- ------------- ------------- Net asset (liability) recognized $ 44,799 $ 43,079 $ (7,686) $ (7,017) ========= ========= ========= ========= (1) For plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $3,939 and $0, respectively, as of February 28, 2002, and $2,781 and $0, respectively, as of February 28, 2001.
28 The following table 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 - --------------------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 - ---------------------------------------------------------------- ---------------------------------------------- Discount rate 7.0% 7.5% 7.0% 7.5% Expected long-term rate of return on plan assets 10.4% 10.4% N/A N/A Rate of future compensation increases 3.75% 4.0% N/A N/A ====================================================================================================================
The assumed health care cost trend rate increase in the per-capita charges for benefits ranged from 9.0 percent to 10.0 percent for fiscal 2003, depending on the medical service category. The rates gradually decrease to a range of 4.0 percent to 5.0 percent through fiscal 2007 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 $166 and $126, respectively, and would increase or decrease the accumulated post-retirement benefit obligation by $1,955 and $1,560, respectively. Components of net periodic benefit cost (income) are as follows:
Defined Benefit Plans Post-Retirement Benefit Plan - ------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- -------- 2002 2001 2000 2002 2001 2000 - ------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- -------- - ------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- -------- Service cost $ 3,586 $ 3,488 $ 3,091 $ 291 $ 246 $ 260 Interest cost 7,145 6,255 5,509 500 447 396 Expected return on plan assets (12,416) (11,589) (10,652) -- -- -- 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) 1,104 213 1,405 -- (18) -- - ------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- -------- Net periodic benefit cost (income) $ (1,679) $(2,731) $(1,745) $ 809 $ 693 $ 674 ================================================= ========== =========== ========== === ========= ========== ========
Defined Contribution Plan The Company has a defined contribution plan covering most employees age 21 and older. The Company matches contributions for participants with at least one year of service at up to six percent of compensation, based on Company performance. The match ranges from a minimum of $0.25 up to $1.00 for each dollar contributed by the participant. The plan had net assets of $442,030 at May 26, 2002, and $363,610 at May 27, 2001. Expense recognized in fiscal 2002, 2001, and 2000 was $1,593, $3,358, and $3,729, respectively. Employees classified as "highly compensated" under the Internal Revenue Code are ineligible to participate in this plan. Amounts payable to highly compensated employees under a separate, non-qualified deferred compensation plan totaled $66,241 and $53,763 as of May 26, 2002 and May 27, 2001, respectively. The defined contribution plan includes an Employee Stock Ownership Plan (ESOP). This ESOP originally borrowed $50,000 from third parties, with guarantees 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. In addition to matching plan participant contributions, Company contributions to the plan are also made to pay certain employee incentive bonuses. Fluctuations in the Company's stock price impact the amount of expense to be recognized. Contributions to the plan, plus the dividends accumulated on allocated and unallocated shares 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 fiscal 2002, 2001, and 2000, the ESOP incurred interest expense of $1,258, $3,086, and $3,436, respectively, and used dividends received of $735, $415, and $941, respectively, and contributions received from the Company of $5,166, $9,224, and $9,385, 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 26, 2002, the ESOP's debt to the Company had a balance of $39,140 with a variable rate of interest of 2.17 percent; $22,240 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 26, 2002, approximates 13,460,000 shares, representing 4,682,000 allocated shares, 197,000 committed-to-be-released shares, and 8,581,000 suspense shares. 29 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 (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 33,300,000 common shares in connection with the granting of non-qualified stock options, restricted stock, or RSUs to key employees. Restricted stock and RSUs may be granted under the plan for up to 2,250,000 shares. The 2000 Plan provides for the issuance of up to 5,400,000 common shares out of the Company's 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 375,000 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. Outstanding options generally vest over two to four years. Restricted stock and RSUs granted under the 1995 and 2000 Plans generally vest over periods ranging from three to five years and no sooner than one year from the date of grant. The restricted period for certain grants may be accelerated based on performance goals established by the Committee. The Company also maintains the Compensation Plan for Non-Employee Directors. 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 75,000 common shares out of the Company's treasury for this purpose. The common shares issuable under the plan have an aggregate fair market value equal to the value of the foregone retainer and meeting fees. The per share weighted-average fair value of stock options granted during fiscal 2002, 2001, and 2000 was $12.25, $11.69, and $4.31, 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 - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Risk-free interest rate 4.50% 7.00% 6.50% 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 ====================================================================================================================
30 The Company applies an intrinsic value method in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for stock options granted under any of its stock plans because the exercise price of all options granted was equal to the current market value of the Company's stock on the grant date. Had the Company determined compensation expense for its stock options based on the fair value at the grant date as prescribed under SFAS No. 123, the Company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated below:
Fiscal Year - -------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------- As reported $ 237,788 $ 197,000 $ 176,705 Pro forma $ 222,097 $ 184,542 $ 168,171 Basic net earnings per share As reported $ 1.36 $ 1.10 $ 0.92 Pro forma $ 1.27 $ 1.03 $ 0.87 Diluted net earnings per share As reported $ 1.30 $ 1.06 $ 0.89 Pro forma $ 1.21 $ 0.99 $ 0.85 ====================================================================================================================
To determine pro forma net earnings, reported net earnings have been adjusted for compensation expense associated with stock options granted 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 30, 1999 8,825,661 $ 7.02 23,249,327 $ 7.57 - -------------------------------------------------------------------------------------------------------------------- Options granted 5,591,244 $ 13.94 Options exercised (1,729,383) $ 6.12 Options cancelled (758,427) $ 8.71 - -------------------------------------------------------------------------------------------------------------------- Balance at May 28, 2000 10,068,389 $ 7.12 26,352,761 $ 8.98 - -------------------------------------------------------------------------------------------------------------------- Options granted 5,375,727 $ 10.99 Options exercised (4,670,100) $ 7.00 Options cancelled (926,100) $ 10.82 - -------------------------------------------------------------------------------------------------------------------- Balance at May 27, 2001 12,222,339 $ 7.62 26,132,288 $ 9.68 - -------------------------------------------------------------------------------------------------------------------- Options granted 5,776,350 $ 17.36 Options exercised (4,310,327) $ 8.36 Options cancelled (675,776) $ 13.49 - -------------------------------------------------------------------------------------------------------------------- Balance at May 26, 2002 12,152,538 $ 8.31 26,922,535 $ 11.44 - --------------------------------------------------------------------------------------------------------------------
The following table provides information regarding exercisable and outstanding options as of May 26, 2002:
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) - -------------------------------------------------------------------------------------------------------------------- $ 4.00 - $10.00 8,911,470 7.02 8,933,218 7.02 3.28 $10.01 - $15.00 3,178,559 11.75 12,273,097 11.95 7.28 $15.01 - $20.00 59,461 18.18 5,549,702 17.01 9.15 Over $20.00 3,048 20.45 166,518 25.89 8.55 - -------------------------------------------------------------------------------------------------------------------- 12,152,538 $ 8.31 26,922,535 $11.44 6.35 ====================================================================================================================
The Company granted restricted stock and RSUs during fiscal 2002, 2001, and 2000 totaling 428,280, 563,306 and 336,459 shares, respectively. The per share weighted-average fair value of the awards granted in fiscal 2002, 2001, and 2000 was $17.10, $10.67, and $13.64, respectively. After giving consideration to assumed forfeiture rates and subsequent forfeiture adjustments, compensation expense recognized in net earnings for awards granted in fiscal 2002, 2001, and 2000 amounted to $4,392, $4,164, and $3,314, respectively. 31 NOTE 16 - EMPLOYEE STOCK PURCHASE PLAN The Company maintains 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 fiscal 2002, 2001, and 2000, employees purchased shares of common stock under the plan totaling 284,576, 328,338, and 364,722, respectively. As of May 26, 2002, an additional 1,039,865 shares are available for issuance. No compensation expense 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 No. 123 is less than $200 and has no impact on reported basic or diluted net earnings per share. NOTE 17 - COMMITMENTS AND CONTINGENCIES The Company makes trade commitments in the course of its normal operations. As of May 26, 2002, and May 27, 2001, the Company was contingently liable for approximately $9,786 and $10,889, respectively, under outstanding trade letters of credit issued in connection with purchase commitments. These letters of credit have terms of one month or less and are used to collateralize the Company's obligations to third parties for the purchase of inventories. As collateral for performance on contracts and as credit guarantees to banks and insurers, the Company is contingently liable under standby letters of credit. As of May 26, 2002, and May 27, 2001, the Company had $30,000 and $30,000, respectively, of standby letters of credit related to workers' compensation and general liabilities accrued in the Company's consolidated financial statements. As of May 26, 2002, and May 27, 2001, the Company had $8,608 and $8,166, respectively, of standby letters of credit related to contractual operating lease obligation and other payments. All standby letters of credit are renewable annually. As of May 26, 2002, and May 27, 2001, the Company had $5,463 and $6,922, respectively, of guarantees associated with third party sub-lease obligations. The guarantees expire over the lease terms. 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 statements. NOTE 18 - QUARTERLY DATA (UNAUDITED) The following table summarizes unaudited quarterly data for fiscal 2002 and 2001:
Fiscal 2002 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 26 Nov. 25 Feb. 24 May 26 Total - -------------------------------------------------------------------------------------------------------------------- Sales $1,073,892 $1,007,475 $1,124,943 $1,162,391 $4,368,701 Restaurant Operating Profit (1) 245,332 206,506 258,435 273,829 984,102 Earnings before Income Taxes (2) 95,577 56,255 102,776 108,701 363,309 Net Earnings (2) 62,156 36,463 66,220 72,949 237,788 Net Earnings per Share (2): Basic 0.35 0.21 0.38 0.42 1.36 Diluted 0.34 0.20 0.36 0.40 1.30 Dividends Paid per Share -- 0.0265 -- 0.0265 0.053 Stock Price: High 21.667 21.653 28.660 29.767 N/A Low 16.400 15.400 20.007 23.733 N/A ==================================================================================================================== (1) Restaurant operating profit is calculated as sales less cost of sales. (2) Includes after-tax restructuring credits of $1,394 and $183 recorded in the second and fourth quarters of fiscal 2002, respectively. The related basic and diluted net earnings per share impact of the credits recorded in the second and fourth quarters of fiscal 2002 amounted to $0.01 and $0.00, respectively.
32
Fiscal 2001 - Quarters Ended - -------------------------------------------------------------------------------------------------------------------- Aug. 27 Nov. 26 Feb. 25 May 27 Total - -------------------------------------------------------------------------------------------------------------------- Sales $1,011,292 $925,879 $981,216 $1,074,032 $3,992,419 Restaurant Operating Profit (1) 224,758 191,075 214,640 237,513 867,986 Earnings before Income 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 0.31 0.17 0.27 0.35 1.10 Diluted 0.31 0.16 0.27 0.33 1.06 Dividends Paid per Share -- 0.0265 -- 0.0265 0.053 Stock Price: High 12.583 17.500 18.000 19.660 N/A Low 10.292 11.083 12.667 13.773 N/A ====================================================================================================================
33
Five-Year Financial Summary (In thousands, except per share data) Fiscal Year Ended - -------------------------------------------------------------------------------------------------------------------- May 26, May 27, May 28, May 30, May 31, Operating Results 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Sales $4,368,701 $3,992,419 $3,675,461 $ 3,432,375 $ 3,261,555 - -------------------------------------------------------------------------------------------------------------------- Costs and Expenses: Cost of sales: Food and beverage 1,384,481 1,302,926 1,199,709 1,133,705 1,083,629 Restaurant labor 1,373,416 1,261,837 1,181,156 1,117,401 1,062,490 Restaurant expenses 626,702 559,670 510,727 485,708 477,182 - -------------------------------------------------------------------------------------------------------------------- Total Cost of Sales $3,384,599 $3,124,433 $2,891,592 $ 2,736,814 $ 2,623,301 - -------------------------------------------------------------------------------------------------------------------- Restaurant Operating Profit 984,102 867,986 783,869 695,561 638,254 - -------------------------------------------------------------------------------------------------------------------- Selling, general, and administrative 420,947 389,240 363,041 343,280 338,209 Depreciation and amortization 165,829 46,864 130,464 125,327 126,289 Interest, net 36,585 30,664 22,388 19,540 20,084 Restructuring and asset impairment credit, net (2,568) -- (5,931) (8,461) -- - -------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses $4,005,392 $3,691,201 $3,401,554 $ 3,216,500 $ 3,107,883 - -------------------------------------------------------------------------------------------------------------------- Earnings before Income Taxes 363,309 301,218 273,907 215,875 153,672 Income Taxes 125,521 104,218 97,202 75,337 51,958 - -------------------------------------------------------------------------------------------------------------------- Net Earnings (1) $ 237,788 $ 197,000 $ 176,705 $ 140,538 $ 101,714 - -------------------------------------------------------------------------------------------------------------------- Net Earnings per Share: (1) Basic $ 1.36 $ 1.10 $ 0.92 $ 0.68 $ 0.46 Diluted $ 1.30 $ 1.06 $ 0.89 $ 0.66 $ 0.45 - -------------------------------------------------------------------------------------------------------------------- Average Number of Common Shares Outstanding, Net of Shares Held in Treasury: Basic 174,700 179,600 192,800 206,000 222,500 Diluted 183,500 185,600 197,800 212,100 227,100 ==================================================================================================================== Financial Position Total Assets $2,529,736 $2,216,534 $1,969,555 $ 1,888,560 $ 1,984,742 Land, Buildings, and Equipment 1,920,768 1,779,515 1,578,541 1,461,535 1,490,348 Working Capital (Deficit) (151,483) (226,116) (316,427) (194,478) (161,123) Long-term Debt 662,506 520,574 306,586 316,451 310,608 Stockholders' Equity 1,128,877 1,033,318 958,602 962,349 1,019,845 Stockholders' Equity per Share 6.56 5.87 5.23 4.86 4.82 ==================================================================================================================== Other Statistics Cash Flow from Operations $ 508,142 $ 420,570 $ 342,626 $ 357,942 $ 239,933 Capital Expenditures 318,392 355,139 268,946 123,673 112,168 Dividends Paid 9,225 9,458 10,134 10,857 11,681 Dividends Paid per Share 0.053 0.053 0.053 0.053 0.053 Advertising Expense 187,950 177,998 165,590 162,934 165,928 Stock Price: High 29.767 19.660 15.375 15.583 12.083 Low 15.400 10.292 8.292 9.458 5.417 Close $ 25.030 $ 19.267 $ 12.583 $ 14.208 $ 10.292 Number of Employees 133,200 128,900 122,300 116,700 114,800 Number of Restaurants 1,211 1,168 1,139 1,139 1,151 ==================================================================================================================== (1) Net earnings and net earnings per share, excluding net restructuring and asset impairment credit, for the fiscal years presented is as follows:
Net Earnings $ 236,211 $ 197,000 $ 173,082 $ 135,313 $ 101,714 Net Earnings per Share: Basic $ 1.35 $ 1.10 $ 0.90 $ 0.66 $ 0.46 Diluted $ 1.29 $ 1.06 $ 0.87 $ 0.64 $ 0.45
34 EX-21 11 exhibit21fy02.txt EXHIBIT21 SUBSIDIARIES OF DARDEN REST. INC. EXHIBIT 21 SUBSIDIARIES OF DARDEN RESTAURANTS, INC. As of May 26, 2002, we had three "significant subsidiaries", as defined in Regulation S-X, Rule 1-02(w), identified as follows: GMRI, Inc., a Florida corporation, doing business as Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones. GMRI Florida, Inc., a Florida corporation, owning a 99% limited partnership interest in GMRI Texas, L.P. GMRI Texas, L.P., a Texas limited partnership, doing business as Red Lobster, Olive Garden and Bahama Breeze. We also had other direct and indirect subsidiaries as of May 26, 2002. None of these subsidiaries would constitute a "significant subsidiary" as defined in Regulation S-X, Rule 1-02(w). EX-23 12 exhibit23fy02.txt EXHIBIT23 INDEPENDENT ACCOUNTANTS' CONSENT EXHIBIT 23 KPMG LLP P.O. Box 31002 St. Petersburg, FL 33731-8902 P.O. Box 1439 Tampa, FL 33601-1439 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Darden Restaurants, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-93854 and 333-41350) and on Form S-8 (Nos. 333-57410, 333-91579 and 333-69037) of Darden Restaurants, Inc. of our report dated June 18, 2002, relating to the consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 26, 2002 and May 27, 2001, and the related consolidated statements of earnings, changes in stockholders' equity and accumulated other comprehensive income, and cash flows for each of the fiscal years in the three-year period ended May 26, 2002, which report is incorporated by reference to page 24 of the Registrant's 2002 Annual Report to Shareholders filed as an exhibit to this Annual Report on Form 10-K of Darden Restaurants, Inc. /s/KPMG LLP Orlando, Florida August 16, 2002 EX-24 13 exhibit24fy02.txt EXHIBIT24 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Leonard L. Berry -------------------------- Leonard L. Berry Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Odie C. Donald -------------------------- Odie C. Donald Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Julius Erving, II -------------------------- Julius Erving, II Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ David H. Hughes -------------------------- David H. Hughes Date: June 20, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Cornelius McGillicuddy, III --------------------------------- Cornelius McGillicuddy, III Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Michael D. Rose -------------------------------- Michael D. Rose Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Maria A. Sastre --------------------------------- Maria A. Sastre Date: June 18, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Jack A. Smith ------------------------------- Jack A. Smith Date: June 17, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Rita P. Wilson --------------------------------------- Rita P. Wilson Date: June 19, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Bradley D. Blum ------------------------------------ Bradley D. Blum Date: June 21, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Richard E. Rivera ----------------------------------- Richard E. Rivera Date: June 21, 2002 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 26, 2002, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. /s/ Blaine Sweatt, III ------------------------------------ Blaine Sweatt, III Date: June 23, 2002 EX-99.A1 14 exhibit99afy02.txt EXHIBIT99A CEO & CFO OATH EXHIBIT 99(a) STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS I, Joe R. Lee, state and attest that: (1) To the best of my knowledge, based upon a review of the covered reports of Darden Restaurants, Inc., and, except as corrected or supplemented in a subsequent covered report: o no covered report contained an untrue statement of a material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and o no covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed). (2) I have reviewed the contents of this statement with the Company's Audit Committee. (3) In this statement under oath, each of the following, if filed on or before the date of this statement, is a "covered report": o Annual Report on Form 10-K for the fiscal year ended May 26, 2002, of Darden Restaurants, Inc.; o all reports on Form 10-Q, all reports on Form 8-K and all definitive proxy materials of Darden Restaurants, Inc. filed with the Commission subsequent to the filing of the Form 10-K identified above; and o any amendments to any of the foregoing. /s/ Joe R. Lee Subscribed and sworn to before me - ----------------- Signature this 19th day of August 2002. Joe R. Lee Chairman and Chief Executive Officer /s/ Theresa M. Tralongo ------------------------ Darden Restaurants, Inc. Notary Public - Theresa M. Tralongo August 19, 2002 State of Florida/County of Orange My Commission Expires: 5/30/05 EX-99.A1 15 exhibit99bfy02.txt EXHIBIT99B CEO & CFO OATH EXHIBIT 99(b) STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS I, Clarence Otis, Jr., state and attest that: (1) To the best of my knowledge, based upon a review of the covered reports of Darden Restaurants, Inc., and, except as corrected or supplemented in a subsequent covered report: o no covered report contained an untrue statement of a material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and o no covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed). (2) I have reviewed the contents of this statement with the Company's Audit Committee. (3) In this statement under oath, each of the following, if filed on or before the date of this statement, is a "covered report": o Annual Report on Form 10-K for fiscal year ended May 26, 2002, of Darden Restaurants, Inc.; o all reports on Form 10-Q, all reports on Form 8-K and all definitive proxy materials of Darden Restaurants, Inc. filed with the Commission subsequent to the filing of the Form 10-K identified above; and o any amendments to any of the foregoing. /s/ Clarence Otis, Jr. Subscribed and sworn to before me - ------------------------------- Signature this 19th day of August 2002. Clarence Otis, Jr. Executive Vice President and /s/ Theresa M. Tralongo ----------------------- Chief Financial Officer Notary Public - Theresa M. Tralongo Darden Restaurants, Inc. State of Florida/County of Orange August 19, 2002 My Commission Expires: 5/30/05 EX-99.A1 16 exhibit99cfy02.txt EXHIBIT99C CEO CERTIFICATION, SEC. 13A &15D EXHIBIT 99(c) CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Darden Restaurants, Inc. ("Company") on Form 10-K for the year ended May 26, 2002, as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Joe R. Lee, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joe R. Lee --------------------- Joe R. Lee Chairman and Chief Executive Officer August 19, 2002 EX-99.A1 17 exhibit99dfy02.txt EXHIBIT99D CFO CERTIFICATION, SEC. 13A & 15D EXHIBIT 99(d) CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Darden Restaurants, Inc. ("Company") on Form 10-K for the year ended May 26, 2002, as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Clarence Otis, Jr., Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Clarence Otis, Jr. --------------------------- Clarence Otis, Jr. Executive Vice President and Chief Financial Officer August 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----