x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Florida | 59-3305930 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1000 Darden Center Drive Orlando, Florida | 32837 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | x | Accelerated filer | o | |||
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o |
Page | |||
Part I - | Financial Information | ||
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Part II - | Other Information | ||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 6. | |||
Three Months Ended | Six Months Ended | ||||||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||
Sales | $ | 1,831.5 | $ | 1,726.2 | $ | 3,773.4 | $ | 3,532.9 | |||||||
Costs and expenses: | |||||||||||||||
Cost of sales: | |||||||||||||||
Food and beverage | 573.3 | 494.7 | 1,166.7 | 1,002.2 | |||||||||||
Restaurant labor | 594.2 | 571.9 | 1,207.3 | 1,150.7 | |||||||||||
Restaurant expenses | 293.1 | 274.9 | 593.0 | 554.0 | |||||||||||
Total cost of sales, excluding restaurant depreciation and amortization of $80.6, $72.8, $159.0 and $144.5, respectively | $ | 1,460.6 | $ | 1,341.5 | $ | 2,967.0 | $ | 2,706.9 | |||||||
Selling, general and administrative | 187.4 | 180.0 | 370.2 | 360.9 | |||||||||||
Depreciation and amortization | 85.8 | 78.0 | 169.8 | 154.7 | |||||||||||
Interest, net | 25.2 | 23.5 | 46.9 | 48.1 | |||||||||||
Total costs and expenses | $ | 1,759.0 | $ | 1,623.0 | $ | 3,553.9 | $ | 3,270.6 | |||||||
Earnings before income taxes | 72.5 | 103.2 | 219.5 | 262.3 | |||||||||||
Income taxes | (18.4 | ) | (27.4 | ) | (58.7 | ) | (73.3 | ) | |||||||
Earnings from continuing operations | $ | 54.1 | $ | 75.8 | $ | 160.8 | $ | 189.0 | |||||||
Losses from discontinued operations, net of tax benefit of $0.2, $0.8, $0.4 and $0.9, respectively | (0.4 | ) | (1.3 | ) | (0.5 | ) | (1.4 | ) | |||||||
Net earnings | $ | 53.7 | $ | 74.5 | $ | 160.3 | $ | 187.6 | |||||||
Basic net earnings per share: | |||||||||||||||
Earnings from continuing operations | $ | 0.42 | $ | 0.55 | $ | 1.22 | $ | 1.37 | |||||||
Losses from discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||||
Net earnings | $ | 0.41 | $ | 0.54 | $ | 1.21 | $ | 1.36 | |||||||
Diluted net earnings per share: | |||||||||||||||
Earnings from continuing operations | $ | 0.41 | $ | 0.54 | $ | 1.19 | $ | 1.34 | |||||||
Losses from discontinued operations | (0.01 | ) | (0.01 | ) | — | (0.01 | ) | ||||||||
Net earnings | $ | 0.40 | $ | 0.53 | $ | 1.19 | $ | 1.33 | |||||||
Average number of common shares outstanding: | |||||||||||||||
Basic | 130.3 | 137.6 | 132.0 | 138.1 | |||||||||||
Diluted | 133.2 | 141.2 | 135.2 | 141.5 | |||||||||||
Dividends declared per common share | $ | 0.43 | $ | 0.32 | $ | 0.86 | $ | 0.64 |
November 27, 2011 | May 29, 2011 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 50.2 | $ | 70.5 | |||
Receivables, net | 75.8 | 65.4 | |||||
Inventories | 396.6 | 300.1 | |||||
Prepaid income taxes | 36.7 | 5.2 | |||||
Prepaid expenses and other current assets | 69.0 | 77.0 | |||||
Deferred income taxes | 169.7 | 145.6 | |||||
Total current assets | $ | 798.0 | $ | 663.8 | |||
Land, buildings and equipment, net of accumulated depreciation and amortization of $2,652.6 and $2,545.4, respectively | 3,838.5 | 3,622.0 | |||||
Goodwill | 533.6 | 517.1 | |||||
Trademarks | 471.0 | 454.0 | |||||
Other assets | 223.5 | 209.7 | |||||
Total assets | $ | 5,864.6 | $ | 5,466.6 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 271.6 | $ | 251.3 | |||
Short-term debt | 455.0 | 185.5 | |||||
Accrued payroll | 127.5 | 167.1 | |||||
Accrued income taxes | — | 9.3 | |||||
Other accrued taxes | 57.1 | 64.3 | |||||
Unearned revenues | 190.5 | 200.0 | |||||
Current portion of long-term debt | 349.9 | — | |||||
Other current liabilities | 413.2 | 409.3 | |||||
Total current liabilities | $ | 1,864.8 | $ | 1,286.8 | |||
Long-term debt, less current portion | 1,453.3 | 1,407.3 | |||||
Deferred income taxes | 363.9 | 345.4 | |||||
Deferred rent | 194.9 | 186.2 | |||||
Obligations under capital leases, net of current installments | 55.2 | 56.0 | |||||
Other liabilities | 218.6 | 248.7 | |||||
Total liabilities | $ | 4,150.7 | $ | 3,530.4 | |||
Stockholders’ equity: | |||||||
Common stock and surplus | $ | 2,457.9 | $ | 2,408.8 | |||
Retained earnings | 2,968.5 | 2,921.9 | |||||
Treasury stock | (3,602.4 | ) | (3,325.3 | ) | |||
Accumulated other comprehensive income (loss) | (101.9 | ) | (59.8 | ) | |||
Unearned compensation | (8.2 | ) | (9.4 | ) | |||
Total stockholders’ equity | $ | 1,713.9 | $ | 1,936.2 | |||
Total liabilities and stockholders’ equity | $ | 5,864.6 | $ | 5,466.6 |
Common Stock And Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Unearned Compensation | Total Stockholders’ Equity | ||||||||||||||||||
Balance at May 29, 2011 | $ | 2,408.8 | $ | 2,921.9 | $ | (3,325.3 | ) | $ | (59.8 | ) | $ | (9.4 | ) | $ | 1,936.2 | ||||||||
Comprehensive income: | |||||||||||||||||||||||
Net earnings | — | 160.3 | — | — | — | 160.3 | |||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Foreign currency adjustment | — | — | — | (1.4 | ) | — | (1.4 | ) | |||||||||||||||
Change in fair value of marketable securities, net of tax of $0.1 | — | — | — | (0.1 | ) | — | (0.1 | ) | |||||||||||||||
Change in fair value of derivatives, net of tax of $24.7 | — | — | — | (44.2 | ) | — | (44.2 | ) | |||||||||||||||
Amortization of unrecognized net actuarial loss, net of tax of $2.2 | — | — | — | 3.6 | — | 3.6 | |||||||||||||||||
Total comprehensive income | 118.2 | ||||||||||||||||||||||
Dividends declared | — | (113.7 | ) | — | — | — | (113.7 | ) | |||||||||||||||
Stock option exercises (0.9 shares) | 23.4 | — | 1.5 | — | — | 24.9 | |||||||||||||||||
Stock-based compensation | 14.3 | — | — | — | — | 14.3 | |||||||||||||||||
ESOP note receivable repayments | — | — | — | — | 1.2 | 1.2 | |||||||||||||||||
Income tax benefits credited to equity | 8.3 | — | — | — | — | 8.3 | |||||||||||||||||
Purchases of common stock for treasury (6.1 shares) | — | — | (279.1 | ) | — | — | (279.1 | ) | |||||||||||||||
Issuance of treasury stock under Employee Stock Purchase Plan and other plans (0.1 shares) | 3.1 | — | 0.5 | — | — | 3.6 | |||||||||||||||||
Balance at November 27, 2011 | $ | 2,457.9 | $ | 2,968.5 | $ | (3,602.4 | ) | $ | (101.9 | ) | $ | (8.2 | ) | $ | 1,713.9 | ||||||||
Balance at May 30, 2010 | $ | 2,297.9 | $ | 2,621.9 | $ | (2,943.5 | ) | $ | (71.1 | ) | $ | (11.2 | ) | $ | 1,894.0 | ||||||||
Comprehensive income: | |||||||||||||||||||||||
Net earnings | — | 187.6 | — | — | — | 187.6 | |||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Foreign currency adjustment | — | — | — | 0.6 | — | 0.6 | |||||||||||||||||
Change in fair value of marketable securities, net of tax of $0.1 | — | — | — | 0.2 | — | 0.2 | |||||||||||||||||
Change in fair value of derivatives, net of tax of $4.1 | — | — | — | (3.2 | ) | — | (3.2 | ) | |||||||||||||||
Amortization of unrecognized net actuarial loss, net of tax of $1.9 | — | — | — | 3.1 | — | 3.1 | |||||||||||||||||
Total comprehensive income | 188.3 | ||||||||||||||||||||||
Dividends declared | — | (88.5 | ) | — | — | — | (88.5 | ) | |||||||||||||||
Stock option exercises (1.1 shares) | 26.1 | — | 1.0 | — | — | 27.1 | |||||||||||||||||
Stock-based compensation | 16.5 | — | — | — | — | 16.5 | |||||||||||||||||
ESOP note receivable repayments | — | — | — | — | 0.8 | 0.8 | |||||||||||||||||
Income tax benefits credited to equity | 7.4 | — | — | — | — | 7.4 | |||||||||||||||||
Purchases of common stock for treasury (4.0 shares) | — | — | (170.7 | ) | — | — | (170.7 | ) | |||||||||||||||
Issuance of treasury stock under Employee Stock Purchase Plan and other plans (0.1 shares) | 3.0 | — | 0.7 | — | — | 3.7 | |||||||||||||||||
Balance at November 28, 2010 | $ | 2,350.9 | $ | 2,721.0 | $ | (3,112.5 | ) | $ | (70.4 | ) | $ | (10.4 | ) | $ | 1,878.6 |
Six Months Ended | |||||||
November 27, 2011 | November 28, 2010 | ||||||
Cash flows—operating activities | |||||||
Net earnings | $ | 160.3 | $ | 187.6 | |||
Losses from discontinued operations, net of tax benefit | 0.5 | 1.4 | |||||
Adjustments to reconcile net earnings from continuing operations to cash flows: | |||||||
Depreciation and amortization | 169.8 | 154.7 | |||||
Asset impairment charges | 0.3 | 2.9 | |||||
Amortization of loan costs | 2.1 | 1.5 | |||||
Stock-based compensation expense | 24.7 | 31.1 | |||||
Change in current assets and liabilities | (299.5 | ) | (84.7 | ) | |||
Contributions to pension and postretirement plans | (11.8 | ) | (6.0 | ) | |||
Loss on disposal of land, buildings and equipment | 3.1 | 2.4 | |||||
Change in cash surrender value of trust-owned life insurance | 11.0 | (6.0 | ) | ||||
Deferred income taxes | 14.0 | (6.8 | ) | ||||
Change in deferred rent | 9.1 | 8.7 | |||||
Change in other liabilities | (3.8 | ) | (6.2 | ) | |||
Income tax benefits from exercise of stock-based compensation credited to goodwill | 0.3 | 0.1 | |||||
Other, net | 0.2 | 1.4 | |||||
Net cash provided by operating activities of continuing operations | $ | 80.3 | $ | 282.1 | |||
Cash flows—investing activities | |||||||
Purchases of land, buildings and equipment | (338.4 | ) | (276.2 | ) | |||
Proceeds from disposal of land, buildings and equipment | 2.1 | 4.3 | |||||
Purchases of marketable securities | (26.7 | ) | (2.3 | ) | |||
Proceeds from sale of marketable securities | 20.0 | 4.4 | |||||
Cash used in business acquisitions, net of cash acquired | (59.2 | ) | — | ||||
Increase in other assets | (5.9 | ) | (6.1 | ) | |||
Net cash used in investing activities of continuing operations | $ | (408.1 | ) | $ | (275.9 | ) | |
Cash flows—financing activities | |||||||
Proceeds from issuance of common stock | 28.3 | 30.7 | |||||
Income tax benefits credited to equity | 8.3 | 7.4 | |||||
Dividends paid | (113.6 | ) | (88.3 | ) | |||
Purchases of treasury stock | (279.1 | ) | (170.7 | ) | |||
ESOP note receivable repayment | 1.2 | 0.8 | |||||
Proceeds from issuance of short-term debt | 1,261.8 | 500.0 | |||||
Repayments of short-term debt | (992.3 | ) | (332.0 | ) | |||
Repayment of long-term debt | (1.2 | ) | (150.8 | ) | |||
Principal payments on capital leases | (0.8 | ) | (0.7 | ) | |||
Proceeds from issuance of long-term debt | 400.0 | — | |||||
Payment of debt issuance costs | (4.8 | ) | — | ||||
Net cash provided by (used in) financing activities of continuing operations | $ | 307.8 | $ | (203.6 | ) | ||
Cash flows—discontinued operations | |||||||
Net cash used in operating activities of discontinued operations | (0.3 | ) | (1.3 | ) | |||
Net cash provided by investing activities of discontinued operations | — | 2.8 | |||||
Net cash (used in) provided by discontinued operations | $ | (0.3 | ) | $ | 1.5 | ||
Decrease in cash and cash equivalents | (20.3 | ) | (195.9 | ) | |||
Cash and cash equivalents - beginning of period | 70.5 | 248.8 | |||||
Cash and cash equivalents - end of period | $ | 50.2 | $ | 52.9 | |||
Cash flows from changes in current assets and liabilities | |||||||
Receivables, net | (10.4 | ) | (0.7 | ) | |||
Inventories | (95.5 | ) | (53.2 | ) | |||
Prepaid expenses and other current assets | (4.8 | ) | (1.8 | ) | |||
Accounts payable | (5.4 | ) | 6.9 | ||||
Accrued payroll | (40.2 | ) | (33.8 | ) | |||
Prepaid/accrued income taxes | (40.9 | ) | (3.1 | ) | |||
Other accrued taxes | (7.3 | ) | (9.6 | ) | |||
Unearned revenues | (10.1 | ) | (8.7 | ) | |||
Other current liabilities | (84.9 | ) | 19.3 | ||||
Change in current assets and liabilities | $ | (299.5 | ) | $ | (84.7 | ) |
(in millions) | ||||
Current assets | $ | 1.7 | ||
Buildings and equipment | 26.8 | |||
Trademarks | 17.0 | |||
Other assets | 2.9 | |||
Goodwill | 16.6 | |||
Total assets acquired | $ | 65.0 | ||
Current liabilities | 4.5 | |||
Other liabilities | 1.3 | |||
Total liabilities assumed | $ | 5.8 | ||
Net assets acquired | $ | 59.2 |
Six Months Ended | ||||||||
(in millions) | November 27, 2011 | November 28, 2010 | ||||||
Interest paid, net of amounts capitalized | $ | 43.7 | $ | 48.8 | ||||
Income taxes paid, net of refunds | 76.3 | 73.9 |
Stock Options Granted During the Six Months Ended | |||||||
November 27, 2011 | November 28, 2010 | ||||||
Weighted-average fair value | $ | 14.33 | $ | 12.82 | |||
Dividend yield | 3.53 | % | 3.01 | % | |||
Expected volatility of stock | 39.4 | % | 39.1 | % | |||
Risk-free interest rate | 2.10 | % | 2.21 | % | |||
Expected option life (in years) | 6.5 | 6.7 |
(in millions) | Stock Options | Restricted Stock/ Restricted Stock Units | Darden Stock Units | Performance Stock Units | ||||||||
Outstanding beginning of period | 13.0 | 0.6 | 1.9 | 1.0 | ||||||||
Awards granted | 1.6 | — | 0.6 | 0.3 | ||||||||
Awards exercised | (0.9 | ) | (0.2 | ) | (0.2 | ) | (0.2 | ) | ||||
Awards forfeited | (0.1 | ) | — | (0.1 | ) | — | ||||||
Outstanding end of period | 13.6 | 0.4 | 2.2 | 1.1 |
Three Months Ended | Six Months Ended | |||||||||||||||
(in millions) | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||
Stock options | $ | 4.7 | $ | 5.1 | $ | 9.7 | $ | 10.0 | ||||||||
Restricted stock/restricted stock units | 1.3 | 2.2 | 2.6 | 4.3 | ||||||||||||
Darden stock units | 3.0 | 5.8 | 5.1 | 8.2 | ||||||||||||
Performance stock units | 2.6 | 3.3 | 5.2 | 6.4 | ||||||||||||
Employee stock purchase plan | 0.5 | 0.5 | 0.9 | 0.9 | ||||||||||||
Director compensation program/other | 1.1 | 1.0 | 1.2 | 1.3 | ||||||||||||
Total stock-based compensation expense | $ | 13.2 | $ | 17.9 | $ | 24.7 | $ | 31.1 |
Three Months Ended | Six Months Ended | |||||||||||
(in millions) | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||
Anti-dilutive restricted stock and options | 3.1 | 1.4 | 2.6 | 1.1 |
Three Months Ended | Six Months Ended | |||||||||||||
November 27, 2011 | November 27, 2011 | |||||||||||||
(in millions) | Shares | Total Cost | Shares | Total Cost | ||||||||||
Common stock repurchased | 4.2 | $ | 187.8 | 6.1 | $ | 279.1 |
Defined Benefit Plans | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(in millions) | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||
Service cost | $ | 1.3 | $ | 1.5 | $ | 2.7 | $ | 3.0 | ||||||||
Interest cost | 2.3 | 2.4 | 4.5 | 4.8 | ||||||||||||
Expected return on plan assets | (4.4 | ) | (4.1 | ) | (8.9 | ) | (8.1 | ) | ||||||||
Recognized net actuarial loss | 1.5 | 1.2 | 3.1 | 2.3 | ||||||||||||
Net periodic benefit cost | $ | 0.7 | $ | 1.0 | $ | 1.4 | $ | 2.0 |
Postretirement Benefit Plan | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(in millions) | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||
Service cost | $ | 0.2 | $ | 0.3 | $ | 0.4 | $ | 0.5 | ||||||||
Interest cost | 0.4 | 0.6 | 0.7 | 1.2 | ||||||||||||
Recognized net actuarial loss | — | 0.3 | — | 0.6 | ||||||||||||
Net periodic benefit cost | $ | 0.6 | $ | 1.2 | $ | 1.1 | $ | 2.3 |
Notional Values | ||||||||
(in millions) | November 27, 2011 | May 29, 2011 | ||||||
Derivative contracts designated as hedging instruments | ||||||||
Natural gas | $ | — | $ | 3.8 | ||||
Other commodities | 7.1 | — | ||||||
Foreign currency | 11.9 | 20.7 | ||||||
Interest rate locks | — | 150.0 | ||||||
Interest rate swaps | 450.0 | 350.0 | ||||||
Equity forwards | 26.4 | 18.0 | ||||||
Derivative contracts not designated as hedging instruments | ||||||||
Natural gas | $ | 5.9 | $ | 7.7 | ||||
Other commodities | 10.5 | 12.7 | ||||||
Equity forwards | 45.2 | 24.0 |
Balance Sheet Location | Derivative Assets | Derivative Liabilities | ||||||||||||||||
(in millions) | November 27, 2011 | May 29, 2011 | November 27, 2011 | May 29, 2011 | ||||||||||||||
Derivative contracts designated as hedging instruments | ||||||||||||||||||
Commodity contracts | (1) | $ | — | $ | 0.1 | $ | (0.9 | ) | $ | — | ||||||||
Equity forwards | (1) | — | 0.4 | (2.3 | ) | — | ||||||||||||
Interest rate related | (1) | 2.0 | 3.6 | (33.1 | ) | (23.2 | ) | |||||||||||
Foreign currency forwards | (1) | — | 0.6 | (0.2 | ) | — | ||||||||||||
$ | 2.0 | $ | 4.7 | $ | (36.5 | ) | $ | (23.2 | ) | |||||||||
Derivative contracts not designated as hedging instruments | ||||||||||||||||||
Commodity contracts | (1) | $ | — | $ | 0.6 | $ | (3.9 | ) | $ | — | ||||||||
Equity forwards | (1) | — | 0.5 | (3.9 | ) | — | ||||||||||||
$ | — | $ | 1.1 | $ | (7.8 | ) | $ | — | ||||||||||
Total derivative contracts | $ | 2.0 | $ | 5.8 | $ | (44.3 | ) | $ | (23.2 | ) |
(1) | Derivative assets and liabilities are included in receivables, net, prepaid expenses and other current assets and other current liabilities, as applicable, on our consolidated balance sheets. |
(in millions) | Amount of Gain (Loss) Recognized in AOCI (effective portion) | Location of Gain (Loss) Reclassified from AOCI to Earnings | Amount of Gain (Loss) Reclassified from AOCI to Earnings (effective portion) | Location of Gain (Loss) Recognized in Earnings (ineffective portion) | (1) Amount of Gain (Loss) Recognized in Earnings (ineffective portion) | |||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||
Type of Derivative | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||||||||||||
Commodity | $ | (1.1 | ) | $ | 0.2 | (2) | $ | (0.6 | ) | $ | (0.5 | ) | (2) | $ | — | $ | — | |||||||||||
Equity | (0.9 | ) | 3.9 | (3) | — | — | (3) | 0.2 | — | |||||||||||||||||||
Interest rate | (21.7 | ) | 8.9 | Interest, net | (0.9 | ) | 0.2 | Interest, net | (0.5 | ) | (0.3 | ) | ||||||||||||||||
Foreign currency | (0.2 | ) | (0.1 | ) | (4) | 0.2 | — | (4) | — | — | ||||||||||||||||||
$ | (23.9 | ) | $ | 12.9 | $ | (1.3 | ) | $ | (0.3 | ) | $ | (0.3 | ) | $ | (0.3 | ) |
(in millions) | Amount of Gain (Loss) Recognized in AOCI (effective portion) | Location of Gain (Loss) Reclassified from AOCI to Earnings | Amount of Gain (Loss) Reclassified from AOCI to Earnings (effective portion) | Location of Gain (Loss) Recognized in Earnings (ineffective portion) | (1) Amount of Gain (Loss) Recognized in Earnings (ineffective portion) | |||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||||||
Type of Derivative | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||||||||||||
Commodity | $ | (1.6 | ) | $ | — | (2) | $ | (0.6 | ) | $ | (0.9 | ) | (2) | $ | — | $ | — | |||||||||||
Equity | (4.4 | ) | 3.5 | (3) | — | — | (3) | 0.3 | 0.1 | |||||||||||||||||||
Interest rate | (63.5 | ) | (11.3 | ) | Interest, net | (0.7 | ) | 0.3 | Interest, net | (0.7 | ) | (0.3 | ) | |||||||||||||||
Foreign currency | (0.2 | ) | — | (4) | 0.5 | 0.1 | (4) | — | — | |||||||||||||||||||
$ | (69.7 | ) | $ | (7.8 | ) | $ | (0.8 | ) | $ | (0.5 | ) | $ | (0.4 | ) | $ | (0.2 | ) |
(1) | Generally, all of our derivative instruments designated as cash flow hedges have some level of ineffectiveness, which is recognized currently in earnings. However, as these amounts are generally nominal and our consolidated financial statements are presented “in millions,” these amounts will generally appear as zero in this tabular presentation. |
(2) | Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is food and beverage costs and restaurant expenses, which are components of cost of sales. |
(3) | Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is restaurant labor expenses, which is a component of cost of sales, and selling, general and administrative expenses. |
(4) | Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is food and beverage costs, which is a component of cost of sales, and selling, general and administrative expenses. |
(in millions) | Amount of Gain (Loss) Recognized in Earnings on Derivatives | Location of Gain (Loss) Recognized in Earnings on Derivatives | Hedged Item in Fair Value Hedge Relationship | Amount of Gain (Loss) Recognized in Earnings on Related Hedged Item | Location of Gain (Loss) Recognized in Earnings on Related Hedged Item | |||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | |||||||||||||||||||
Interest rate | $ | (0.9 | ) | $ | (0.6 | ) | Interest, net | Fixed-rate debt | $ | 0.9 | $ | 0.6 | Interest, net |
(in millions) | Amount of Gain (Loss) Recognized in Earnings on Derivatives | Location of Gain (Loss) Recognized in Earnings on Derivatives | Hedged Item in Fair Value Hedge Relationship | Amount of Gain (Loss) Recognized in Earnings on Related Hedged Item | Location of Gain (Loss) Recognized in Earnings on Related Hedged Item | |||||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | |||||||||||||||||||
Interest rate | $ | (1.6 | ) | $ | 0.9 | Interest, net | Fixed-rate debt | $ | 1.6 | $ | (0.9 | ) | Interest, net |
Location of Gain (Loss) Recognized in Earnings on Derivatives | Amount of Gain (Loss) Recognized in Earnings | |||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | |||||||||||||||
(in millions) | ||||||||||||||||||
Commodity contracts | (1) | $ | (2.8 | ) | $ | 0.1 | $ | (4.7 | ) | $ | — | |||||||
Equity forwards | (2) | — | 2.6 | (0.8 | ) | 2.5 | ||||||||||||
Equity forwards | Selling, General and Administrative | (1.3 | ) | 1.2 | (2.6 | ) | 1.2 | |||||||||||
$ | (4.1 | ) | $ | 3.9 | $ | (8.1 | ) | $ | 3.7 |
(1) | Location of the gain (loss) recognized in earnings is food and beverage costs and restaurant expenses, which are components of cost of sales. |
(2) | Location of the gain (loss) recognized in earnings is restaurant labor expenses, which is a component of cost of sales. |
Items Measured at Fair Value at November 27, 2011 | ||||||||||||||||||
(in millions) | Fair value of assets (liabilities) | Quoted prices in active market for identical assets (liabilities) (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
Fixed-income securities: | ||||||||||||||||||
Corporate bonds | (1 | ) | $ | 13.0 | $ | — | $ | 13.0 | $ | — | ||||||||
U.S. Treasury securities | (2 | ) | 8.9 | 8.9 | — | — | ||||||||||||
Mortgage-backed securities | (1 | ) | 11.8 | — | 11.8 | — | ||||||||||||
Derivatives: | ||||||||||||||||||
Commodities futures, swaps & options | (3 | ) | (4.8 | ) | — | (1.1 | ) | (3.7 | ) | |||||||||
Equity forwards | (4 | ) | (6.2 | ) | — | (6.2 | ) | — | ||||||||||
Interest rate swaps | (5 | ) | (31.1 | ) | — | (31.1 | ) | — | ||||||||||
Foreign currency forwards | (6 | ) | (0.2 | ) | — | (0.2 | ) | — | ||||||||||
Total | $ | (8.6 | ) | $ | 8.9 | $ | (13.8 | ) | $ | (3.7 | ) |
Items Measured at Fair Value at May 29, 2011 | ||||||||||||||||||
(in millions) | Fair value of assets (liabilities) | Quoted prices in active market for identical assets (liabilities) (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
Fixed-income securities: | ||||||||||||||||||
Corporate bonds | (1 | ) | $ | 16.6 | $ | — | $ | 16.6 | $ | — | ||||||||
U.S. Treasury securities | (2 | ) | 10.6 | 10.6 | — | — | ||||||||||||
Mortgage-backed securities | (1 | ) | 4.9 | — | 4.9 | — | ||||||||||||
Derivatives: | ||||||||||||||||||
Commodities futures, swaps & options | (3 | ) | 0.7 | — | 0.7 | — | ||||||||||||
Equity forwards | (4 | ) | 0.9 | — | 0.9 | — | ||||||||||||
Interest rate locks & swaps | (5 | ) | (19.6 | ) | — | (19.6 | ) | — | ||||||||||
Foreign currency forwards | (6 | ) | 0.6 | — | 0.6 | — | ||||||||||||
Total | $ | 14.7 | $ | 10.6 | $ | 4.1 | $ | — |
(1) | The fair value of these securities is based on closing market prices of the investments when applicable, or, alternatively, valuations utilizing market data and other observable inputs, inclusive of the risk of nonperformance. |
(2) | The fair value of our U.S. Treasury securities is based on closing market prices. |
(3) | The fair value of our commodities futures, swaps and options classified as Level 2 is based on closing market prices of the contracts, inclusive of the risk of nonperformance. The fair value of our commodities futures, swaps and options classified as Level 3 is based on internal models that consider the various contract provisions, in addition to the closing market prices of the related commodities. |
(4) | The fair value of our equity forwards is based on closing market values of Darden stock, inclusive of the risk of nonperformance. |
(5) | The fair value of our interest rate lock and swap agreements is based on current and expected market interest rates, inclusive of the risk of nonperformance. |
(6) | The fair value of our foreign currency forward contracts is based on closing forward exchange market prices, inclusive of the risk of nonperformance. |
Items Measured at Fair Value | ||||||||||||||||
(in millions) | Fair Value of Assets | Quoted prices in active market for identical assets (liabilities) (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||
Long-lived assets held for disposal | (1 | ) | $ | 1.2 | — | — | $ | 1.2 | ||||||||
Long-lived assets held and used | (2 | ) | — | — | — | — | ||||||||||
Total | $ | 1.2 | — | — | $ | 1.2 |
(1) | In accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, during fiscal 2012, long-lived assets held for disposal with a carrying amount of $1.4 million were written down to their fair value of $1.2 million, based on a review of comparable assets, resulting in an impairment charge of $0.2 million, which was included in losses from discontinued operations. |
(2) | In accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, during fiscal 2012, long-lived assets held and used with a carrying amount of $0.3 million were written down to their fair value of $0.0 million, due to fire loss, resulting in an impairment charge of $0.3 million, which was included in earnings from continuing operations. |
Items Measured at Fair Value | ||||||||||||||||||
(in millions) | Fair value of assets | Quoted prices in active market for identical assets (liabilities) (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||
Long-lived assets held for disposal | (1 | ) | $ | 4.4 | $ | — | $ | — | $ | 4.4 | ||||||||
Long-lived assets held and used | (2 | ) | 0.7 | — | — | 0.7 | ||||||||||||
Total | $ | 5.1 | $ | — | $ | — | $ | 5.1 |
(1) | In accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, during fiscal 2011, long-lived assets held for disposal with a carrying amount of $7.0 million were written down to their fair value of $4.4 million, based on a review of comparable assets, resulting in an impairment charge of $2.6 million, of which $1.9 million was included in earnings from continuing operations and $0.7 million was included in losses from discontinued operations. |
(2) | In accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, during fiscal 2011, long-lived assets held and used with a carrying amount of $2.8 million were written down to their fair value of $0.7 million, based on a review of comparable assets, resulting in an impairment charge of $2.1 million, which was included in earnings from continuing operations. |
Three Months Ended | Six Months Ended | ||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||
Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Costs and expenses: | |||||||||||
Cost of sales: | |||||||||||
Food and beverage | 31.3 | 28.7 | 30.9 | 28.4 | |||||||
Restaurant labor | 32.4 | 33.1 | 32.0 | 32.5 | |||||||
Restaurant expenses | 16.0 | 15.9 | 15.7 | 15.7 | |||||||
Total cost of sales, excluding restaurant depreciation and amortization of 4.4%, 4.2%, 4.2% and 4.1%, respectively | 79.7 | % | 77.7 | % | 78.6 | % | 76.6 | % | |||
Selling, general and administrative | 10.2 | 10.4 | 9.9 | 10.2 | |||||||
Depreciation and amortization | 4.7 | 4.5 | 4.5 | 4.4 | |||||||
Interest, net | 1.4 | 1.4 | 1.2 | 1.4 | |||||||
Total costs and expenses | 96.0 | % | 94.0 | % | 94.2 | % | 92.6 | % | |||
Earnings before income taxes | 4.0 | 6.0 | 5.8 | 7.4 | |||||||
Income taxes | (1.0 | ) | (1.6 | ) | (1.5 | ) | (2.1 | ) | |||
Earnings from continuing operations | 3.0 | 4.4 | 4.3 | 5.3 | |||||||
Losses from discontinued operations | (0.1 | ) | (0.1 | ) | (0.1 | ) | — | ||||
Net earnings | 2.9 | % | 4.3 | % | 4.2 | % | 5.3 | % |
November 27, 2011 | May 29, 2011 | November 28, 2010 | |||||||
Red Lobster – USA | 674 | 670 | 665 | ||||||
Red Lobster – Canada | 27 | 28 | 28 | ||||||
Total | 701 | 698 | 693 | ||||||
Olive Garden – USA | 757 | 748 | 729 | ||||||
Olive Garden – Canada | 6 | 6 | 6 | ||||||
Total | 763 | 754 | 735 | ||||||
LongHorn Steakhouse | 367 | 354 | 340 | ||||||
The Capital Grille | 45 | 44 | 44 | ||||||
Bahama Breeze | 27 | 26 | 25 | ||||||
Seasons 52 | 21 | 17 | 15 | ||||||
Eddie V's (1) | 11 | — | — | ||||||
Other | 1 | 1 | — | ||||||
Total | 1,936 | 1,894 | 1,852 |
(1) | Represents the number of restaurants owned and operated by us as of the end of each period reported, and includes the restaurants acquired from Eddie V's on November 14, 2011. |
• | $100.0 million of unsecured 7.125 percent debentures due in February 2016; |
• | $500.0 million of unsecured 6.200 percent senior notes due in October 2017; |
• | $400.0 million of unsecured 4.500 percent senior notes due in October 2021; |
• | $150.0 million of unsecured 6.000 percent senior notes due in August 2035; |
• | $300.0 million of unsecured 6.800 percent senior notes due in October 2037; and |
• | An unsecured, variable rate $6.9 million commercial bank loan due in December 2018 that is used to support two loans from us to the Employee Stock Ownership Plan (ESOP) portion of the Darden Savings Plan. |
(in millions) | Payments Due by Period | |||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
Short-term debt | $ | 455.0 | $ | 455.0 | $ | — | $ | — | $ | — | ||||||||||
Long-term debt (1) | 2,971.2 | 456.6 | 175.2 | 269.0 | 2,070.4 | |||||||||||||||
Operating leases | 867.9 | 144.8 | 253.8 | 195.2 | 274.1 | |||||||||||||||
Purchase obligations (2) | 742.4 | 702.8 | 23.6 | 16.0 | — | |||||||||||||||
Capital lease obligations (3) | 97.2 | 5.1 | 10.7 | 11.3 | 70.1 | |||||||||||||||
Benefit obligations (4) | 417.7 | 46.5 | 68.8 | 75.2 | 227.2 | |||||||||||||||
Unrecognized income tax benefits(5) | 18.3 | 0.8 | 12.4 | 5.1 | — | |||||||||||||||
Total contractual obligations | $ | 5,569.7 | $ | 1,811.6 | $ | 544.5 | $ | 571.8 | $ | 2,641.8 | ||||||||||
(in millions) | Amount of Commitment Expiration per Period | |||||||||||||||||||
Other Commercial Commitments | Total Amounts Committed | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
Standby letters of credit (6) | $ | 117.2 | $ | 117.2 | $ | — | $ | — | $ | — | ||||||||||
Guarantees (7) | 6.0 | 1.2 | 2.2 | 1.6 | 1.0 | |||||||||||||||
Total commercial commitments | $ | 123.2 | $ | 118.4 | $ | 2.2 | $ | 1.6 | $ | 1.0 |
(1) | Includes interest payments associated with existing long-term debt, including the current portion. Variable-rate interest payments associated with the ESOP loan were estimated based on an average interest rate of 1.6 percent. Excludes issuance discount of $5.6 million. |
(2) | Includes commitments for food and beverage items, supplies, capital projects and other miscellaneous commitments. |
(3) | Capital lease obligations include imputed interest of $40.5 million over the life of the obligations. |
(4) | Includes expected contributions associated with our defined benefit plans and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2021. |
(5) | Includes interest on unrecognized income tax benefits of $1.9 million, $0.1 million of which relates to contingencies expected to be resolved within one year. |
(6) | Includes letters of credit for $99.2 million of workers’ compensation and general liabilities accrued in our consolidated financial statements, $70.9 million of which are backed by our New Revolving Credit Agreement, letters of credit for $0.9 million of lease payments included in the contractual operating lease obligation payments noted above and other letters of credit totaling $17.1 million. |
(7) | Consists solely of guarantees associated with leased properties that have been assigned to third parties. We are not aware of any non-performance under these arrangements that would result in our having to perform in accordance with the terms of the guarantees. |
• | Food safety and food-borne illness concerns throughout the supply chain; |
• | Litigation, including allegations of illegal, unfair or inconsistent employment practices, by employees, guests, suppliers, shareholders or others, regardless of whether the allegations made against us are valid or we are ultimately found liable; |
• | Unfavorable publicity, or a failure to respond effectively to adverse publicity, relating to food safety or other concerns that could harm our reputation; |
• | Federal, state and local regulation of our business, including laws and regulations relating to food safety, minimum wage and other labor issues including unionization, health care reform, data privacy, immigration, taxes, menu labeling, building and zoning requirements, land use and environmental laws including climate change regulations, and liquor laws; |
• | Labor and insurance costs, including increased labor costs as a result of federal and state-mandated increases in minimum wage rates and increased insurance costs as a result of increases in our current insurance premiums; |
• | A material information technology failure, inadequacy, interruption or breach of security; |
• | Our inability or failure to execute a comprehensive business continuity plan following a major natural disaster such as a hurricane or manmade disaster, including terrorism; |
• | The health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases; |
• | The intensely competitive nature of the restaurant industry, especially pricing, service, location, personnel and type and quality of food; |
• | Factors impacting our ability to drive sufficient profitable sales growth through brand relevance, operating excellence, opening new restaurants and developing or acquiring new dining brands, including lower-than-expected sales of newly-opened restaurants and acquisition risks, including our ability to successfully integrate Eddie V's restaurant operations; |
• | The impact of the substantial indebtedness we incurred in connection with the acquisition of RARE; |
• | Our plans to expand smaller brands like Bahama Breeze and Seasons 52 that have not yet proven their long-term viability may not be successful and could require us to make substantial further investments in these brands and result in losses and impairments; |
• | A lack of suitable new restaurant locations or a decline in the quality of the locations of our current restaurants; |
• | Higher-than-anticipated costs to open, close, relocate or remodel restaurants; |
• | Increased advertising and marketing costs; |
• | A failure to develop and recruit effective leaders or the loss of key personnel; |
• | The price and availability of key food products, ingredients and utilities used by our restaurants and a failure to achieve economies of scale in purchasing; |
• | The impact of shortages or interruptions in the delivery of food and other products from third party vendors and suppliers; |
• | The impact of volatility in the market value of derivatives we use to hedge commodity prices; |
• | Economic and business factors specific to the restaurant industry and other general macroeconomic factors including |
• | The impact of disruptions in the financial markets, including the availability and cost of credit and an increase in pension plan expenses; |
• | Risks associated with doing business with franchisees, business partners and vendors in foreign markets; |
• | Failure to protect our service marks or other intellectual property; |
• | The negative effect of a possible impairment in the carrying value of our goodwill or other intangible assets; and |
• | A failure of our internal control over financial reporting and future changes in accounting standards. |
Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2) | ||||||||
August 29, 2011 through October 2, 2011 | 2,825,698 | $45.12 | 2,825,698 | 19,998,768 | |||||||
October 3, 2011 through October 30, 2011 | 1,360,339 | $44.34 | 1,360,339 | 18,638,429 | |||||||
October 31, 2011 through November 27, 2011 | 772 | $48.02 | 772 | 18,637,657 | |||||||
Total | 4,186,809 | $44.87 | 4,186,809 | 18,637,657 |
(1) | All of the shares purchased during the quarter ended November 27, 2011 were purchased as part of our repurchase program. On December 17, 2010, our Board of Directors approved an additional share repurchase authorization of 25.0 million shares which was announced publicly in a press release issued on December 20, 2010, bringing the total shares authorized to be repurchased to 187.4 million shares. There is no expiration date for our program. The number of shares purchased includes shares withheld for taxes on vesting of restricted stock, shares delivered or deemed to be delivered to us on tender of stock in payment for the exercise price of options, and shares reacquired pursuant to tax withholding on option exercises. These shares are included as part of our repurchase program and deplete the repurchase authority granted by our Board. The number of shares repurchased excludes shares we reacquired pursuant to forfeiture of restricted stock. |
(2) | Repurchases are subject to prevailing market prices, may be made in open market or private transactions and may occur or be discontinued at any time. There can be no assurance that we will repurchase any shares. |
Exhibit No. | Exhibit Title | |
4 | Officers' Certificate and Authentication Order dated October 5, 2011 for the 4.50% Senior Notes due 2021 (which includes the form of Note) issued pursuant to the Indenture dated as of January 1, 1996, between the Company and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association), as Trustee (incorporated herein by reference to Exhibit 4.1 to our Current Report on Form 8-K filed October 11, 2011). | |
10 | Credit Agreement, dated as of October 3, 2011, among Darden Restaurants, Inc., certain lenders party thereto and Bank of America, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed October 3, 2011). | |
12 | Computation of Ratio of Consolidated Earnings to Fixed Charges. | |
31(a) | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31(b) | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32(a) | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32(b) | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
DARDEN RESTAURANTS, INC. | |||
Dated: | January 3, 2012 | By: | /s/ C. Bradford Richmond |
C. Bradford Richmond | |||
Senior Vice President and Chief Financial Officer | |||
(Principal financial officer) |
Exhibit No. | Exhibit Title | |
4 | Officers' Certificate and Authentication Order dated October 5, 2011 for the 4.50% Senior Notes due 2021 (which includes the form of Note) issued pursuant to the Indenture dated as of January 1, 1996, between the Company and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association), as Trustee (incorporated herein by reference to Exhibit 4.1 to our Current Report on Form 8-K filed October 11, 2011). | |
10 | Credit Agreement, dated as of October 3, 2011, among Darden Restaurants, Inc., certain lenders party thereto and Bank of America, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed October 3, 2011). | |
12 | Computation of Ratio of Consolidated Earnings to Fixed Charges. | |
31(a) | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31(b) | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32(a) | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32(b) | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
Three Months Ended | Six Months Ended | ||||||||||||||
November 27, 2011 | November 28, 2010 | November 27, 2011 | November 28, 2010 | ||||||||||||
Consolidated earnings from continuing operations before income taxes | $ | 72.5 | $ | 103.2 | $ | 219.5 | $ | 262.3 | |||||||
Plus fixed charges: | |||||||||||||||
Gross interest expense(1) | 26.5 | 24.4 | 49.1 | 50.1 | |||||||||||
40% of restaurant and equipment minimum rent expense | 12.9 | 11.9 | 25.6 | 23.5 | |||||||||||
Total fixed charges | 39.4 | 36.3 | 74.7 | 73.6 | |||||||||||
Less capitalized interest | (1.0 | ) | (0.7 | ) | (1.7 | ) | (1.4 | ) | |||||||
Consolidated earnings from continuing operations before income taxes available to cover fixed charges | $ | 110.9 | $ | 138.8 | $ | 292.5 | $ | 334.5 | |||||||
Ratio of consolidated earnings from continuing operations to fixed charges | 2.8 | 3.8 | 3.9 | 4.5 |
1. | I have reviewed this quarterly report on Form 10-Q of Darden Restaurants, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
January 3, 2012 | |
/s/ Clarence Otis, Jr. | |
Clarence Otis, Jr. | |
Chairman and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Darden Restaurants, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
January 3, 2012 | |
/s/ C. Bradford Richmond | |
C. Bradford Richmond | |
Senior Vice President and Chief Financial Officer |
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. |
January 3, 2012 | |
/s/ Clarence Otis, Jr. | |
Clarence Otis, Jr. | |
Chairman and Chief Executive Officer |
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. |
January 3, 2012 | |
/s/ C. Bradford Richmond | |
C. Bradford Richmond | |
Senior Vice President and Chief Financial Officer |
Stockholders' Equity (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Nov. 27, 2011
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Nov. 27, 2011
|
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Authorization to repurchase common stock | 187.4 | 187.4 |
Total repurchased shares of common stock | 168.8 | 168.8 |
Common stock repurchased, shares | 4.2 | 6.1 |
Common stock repurchased, total cost | $ 187.8 | $ 279.1 |
Fair Value Measurements (Carrying Value And Fair Value Of Long-Term Debt) (Details) (USD $)
In Billions, unless otherwise specified |
Nov. 27, 2011
|
May 29, 2011
|
---|---|---|
Fair Value Disclosures [Abstract] | ||
Carrying value of long-term debt | $ 1.80 | $ 1.41 |
Fair value of long-term debt | $ 2.03 | $ 1.56 |
Derivative Instruments And Hedging Activities (Effects Of Derivatives Not Designated As Hedging Instruments) (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 27, 2011
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Nov. 28, 2010
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Nov. 27, 2011
|
Nov. 28, 2010
|
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Amount of Gain (Loss) Recognized in Earnings | $ (4.1) | $ 3.9 | $ (8.1) | $ 3.7 | ||||||||
Commodity Contracts [Member] | Cost Of Sales [Member]
|
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Amount of Gain (Loss) Recognized in Earnings | (2.8) | [1] | 0.1 | [1] | (4.7) | [1] | 0 | [1] | ||||
Equity Forwards [Member] | Cost Of Sales [Member]
|
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Amount of Gain (Loss) Recognized in Earnings | 0 | [2] | 2.6 | [2] | (0.8) | [2] | 2.5 | [2] | ||||
Equity Forwards [Member] | Selling, General And Administrative [Member]
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Amount of Gain (Loss) Recognized in Earnings | $ (1.3) | $ 1.2 | $ (2.6) | $ 1.2 | ||||||||
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Stock-Based Compensation (Option Pricing Assumptions) (Details) (Stock Options [Member], USD $)
|
6 Months Ended | |
---|---|---|
Nov. 27, 2011
years
|
Nov. 28, 2010
years
|
|
Stock Options [Member]
|
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Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Weighted-average fair value | $ 14.33 | $ 12.82 |
Dividend yield | 3.53% | 3.01% |
Expected volatility of stock | 39.40% | 39.10% |
Risk-free interest rate | 2.10% | 2.21% |
Expected option life (in years) | 6.5 | 6.7 |
Stock-Based Compensation (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 27, 2011
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Share-based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes option pricing model were as follows:
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Summary Of Darden Stock Unit Activity | The following table presents a summary of our stock-based compensation activity for the six months ended November 27, 2011:
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Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan | We recognized expense from stock-based compensation as follows:
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Commitments And Contingencies (Details) (USD $)
|
6 Months Ended | ||||||
---|---|---|---|---|---|---|---|
Nov. 27, 2011
|
Nov. 27, 2011
Workers Compensation And General Liabilities Accrued [Member]
|
May 29, 2011
Workers Compensation And General Liabilities Accrued [Member]
|
Nov. 27, 2011
Operating Lease Obligation [Member]
|
May 29, 2011
Operating Lease Obligation [Member]
|
Nov. 27, 2011
Property Lease Guarantee [Member]
|
May 29, 2011
Property Lease Guarantee [Member]
|
|
Standby letters of credit | $ 99,200,000 | $ 96,400,000 | $ 18,000,000 | $ 16,800,000 | |||
Loss Contingency, Range of Possible Loss, Maximum | 6,000,000 | 7,400,000 | |||||
Fair value of potential payments discounted at pre-tax cost of capital related to guarantee obligations | 4,500,000 | 5,400,000 | |||||
Accrued liabilities resulting from reassessment of likelihood of third parties defaulting on assignment agreements | $ 0 |
Derivative Instruments And Hedging Activities (Notional Values Of Derivative Contracts Designated And Not Designated As Hedging Instruments) (Details) (USD $)
In Millions, unless otherwise specified |
Nov. 27, 2011
|
May 29, 2011
|
---|---|---|
Designated as Hedging Instrument [Member] | Natural Gas [Member]
|
||
Derivative contracts designated as hedging instruments | $ 0 | $ 3.8 |
Designated as Hedging Instrument [Member] | Other Commodities [Member]
|
||
Derivative contracts designated as hedging instruments | 7.1 | 0 |
Designated as Hedging Instrument [Member] | Foreign Currency [Member]
|
||
Derivative contracts designated as hedging instruments | 11.9 | 20.7 |
Designated as Hedging Instrument [Member] | Interest Rate [Member]
|
||
Derivative contracts designated as hedging instruments | 0 | 150.0 |
Designated as Hedging Instrument [Member] | Interest Rate Swaps [Member]
|
||
Derivative contracts designated as hedging instruments | 450.0 | 350.0 |
Designated as Hedging Instrument [Member] | Equity Forwards [Member]
|
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Derivative contracts designated as hedging instruments | 26.4 | 18.0 |
Not Designated as Hedging Instrument [Member] | Natural Gas [Member]
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Derivative contracts designated as hedging instruments | 5.9 | 7.7 |
Not Designated as Hedging Instrument [Member] | Other Commodities [Member]
|
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Derivative contracts designated as hedging instruments | 10.5 | 12.7 |
Not Designated as Hedging Instrument [Member] | Equity Forwards [Member]
|
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Derivative contracts designated as hedging instruments | $ 45.2 | $ 24.0 |
Long-Term Debt (Narrative) (Details) (USD $)
|
6 Months Ended | 6 Months Ended | 6 Months Ended | 0 Months Ended | 6 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 27, 2011
|
Nov. 28, 2010
|
Nov. 27, 2011
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Revolving Credit Facility [Member]
|
Oct. 03, 2011
Revolving Credit Facility [Member]
Prior Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Revolving Credit Facility [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Commercial Paper [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Letters of Credit [Member]
New Revolving Credit Agreement [Member]
|
Oct. 03, 2011
Sub Limit [Member]
Prior Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Sub Limit [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Senior Notes [Member]
adjustments
|
Nov. 27, 2011
Senior Notes [Member]
5.625% Senior Notes Due October 2012 [Member]
|
Nov. 27, 2011
Senior Notes [Member]
6.200 Percent Senior Notes Due October 2017 [Member]
|
Nov. 27, 2011
Senior Notes [Member]
6.800% Senior Notes Due October 2037 [Member]
|
Oct. 11, 2011
Senior Notes [Member]
4.500% Senior Notes Due October 2021
|
Nov. 27, 2011
Minimum [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Maximum [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Maximum [Member]
Senior Notes [Member]
|
Nov. 27, 2011
Libor [Member]
Revolving Credit Facility [Member]
New Revolving Credit Agreement [Member]
|
Nov. 27, 2011
Base Rate Loans [Member]
Revolving Credit Facility [Member]
New Revolving Credit Agreement [Member]
|
|
Maximum borrowing available under the credit facility | $ 750,000,000 | $ 750,000,000 | ||||||||||||||||||
Total debt to total capitalization ratio | 0.75 | 0.75 | ||||||||||||||||||
Expiration date of credit facility | October 3, 2016 | |||||||||||||||||||
Maximum aggregate borrowings available | 1,000,000,000 | 150,000,000 | 150,000,000 | |||||||||||||||||
Increase in credit facility | 250,000,000 | |||||||||||||||||||
Base interest rate percentage of revolving credit facility in addition to federal funds rate | 0.50% | |||||||||||||||||||
Applicable interest rate assuming a BBB equivalent credit rating level | 1.075% | 0.075% | ||||||||||||||||||
Maximum amount of borrowings resulting in fluctuation of LIBOR or base rate | 200,000,000 | |||||||||||||||||||
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage | 0.125% | 0.25% | ||||||||||||||||||
Amount outstanding under credit facility | 0 | 455,000,000 | 70,900,000 | |||||||||||||||||
Remaining credit available | 224,100,000 | |||||||||||||||||||
Face amount of debt | 350,000,000 | 500,000,000 | 300,000,000 | 400,000,000 | ||||||||||||||||
Interest rate of debt | 5.625% | 6.20% | 6.80% | 4.50% | ||||||||||||||||
Payments of Debt Issuance Costs | $ 4,800,000 | $ 0 | $ 4,800,000 | |||||||||||||||||
Percent of Principal Amount Required To Purchase New Senior Notes In Event Of Control Triggering Event | 101.00% | |||||||||||||||||||
Maturity date of debt | Oct. 01, 2012 | Oct. 01, 2017 | Oct. 01, 2037 | |||||||||||||||||
Maximum range of interest rate adjustment on funds borrowed | 2.00% | |||||||||||||||||||
Adjustments made to interest rates on funds borrowed | 0 |
Fair Value Measurements (Fair Values Of Financial Instruments Measured At Fair Value On Recurring Basis) (Details) (Fair Value, Measurements, Recurring [Member], USD $)
In Millions, unless otherwise specified |
Nov. 27, 2011
|
May 29, 2011
|
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Estimate of Fair Value, Fair Value Disclosure [Member]
|
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Total | $ (8.6) | $ 14.7 | ||||||||||||||
Estimate of Fair Value, Fair Value Disclosure [Member] | Corporate Bonds [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 13.0 | [1] | 16.6 | [1] | ||||||||||||
Estimate of Fair Value, Fair Value Disclosure [Member] | U.S. Treasury Securities [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 8.9 | [2] | 10.6 | [2] | ||||||||||||
Estimate of Fair Value, Fair Value Disclosure [Member] | Mortgage-Backed Securities [Member]
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 11.8 | [1] | 4.9 | [1] | ||||||||||||
Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member]
|
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Total | 8.9 | 10.6 | ||||||||||||||
Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member] | Corporate Bonds [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [1] | 0 | [1] | ||||||||||||
Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member] | U.S. Treasury Securities [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 8.9 | [2] | 10.6 | [2] | ||||||||||||
Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member] | Mortgage-Backed Securities [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [1] | 0 | [1] | ||||||||||||
Significant Other Observable Inputs (Level 2) [Member]
|
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Total | (13.8) | 4.1 | ||||||||||||||
Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member]
|
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Fixed-income securities, Corporate bonds and U.S Treasury securities | 13.0 | [1] | 16.6 | [1] | ||||||||||||
Significant Other Observable Inputs (Level 2) [Member] | U.S. Treasury Securities [Member]
|
||||||||||||||||
Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [2] | 0 | [2] | ||||||||||||
Significant Other Observable Inputs (Level 2) [Member] | Mortgage-Backed Securities [Member]
|
||||||||||||||||
Fixed-income securities, Corporate bonds and U.S Treasury securities | 11.8 | [1] | 4.9 | [1] | ||||||||||||
Significant Unobservable Inputs (Level 3) [Member]
|
||||||||||||||||
Total | (3.7) | 0 | ||||||||||||||
Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member]
|
||||||||||||||||
Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [1] | 0 | [1] | ||||||||||||
Significant Unobservable Inputs (Level 3) [Member] | U.S. Treasury Securities [Member]
|
||||||||||||||||
Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [2] | 0 | [2] | ||||||||||||
Significant Unobservable Inputs (Level 3) [Member] | Mortgage-Backed Securities [Member]
|
||||||||||||||||
Fixed-income securities, Corporate bonds and U.S Treasury securities | 0 | [1] | 0 | [1] | ||||||||||||
Commodities Swaps And Futures [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
|
||||||||||||||||
Fair value of assets (liabilities) | (4.8) | [3] | 0.7 | [3] | ||||||||||||
Commodities Swaps And Futures [Member] | Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member]
|
||||||||||||||||
Fair value of assets (liabilities) | 0 | [3] | 0 | [3] | ||||||||||||
Commodities Swaps And Futures [Member] | Significant Other Observable Inputs (Level 2) [Member]
|
||||||||||||||||
Fair value of assets (liabilities) | (1.1) | [3] | 0.7 | [3] | ||||||||||||
Commodities Swaps And Futures [Member] | Significant Unobservable Inputs (Level 3) [Member]
|
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Fair value of assets (liabilities) | (3.7) | [3] | 0 | [3] | ||||||||||||
Equity Forwards [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
|
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Fair value of assets (liabilities) | (6.2) | [4] | 0.9 | [4] | ||||||||||||
Equity Forwards [Member] | Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member]
|
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Fair value of assets (liabilities) | 0 | [4] | 0 | [4] | ||||||||||||
Equity Forwards [Member] | Significant Other Observable Inputs (Level 2) [Member]
|
||||||||||||||||
Fair value of assets (liabilities) | (6.2) | [4] | 0.9 | [4] | ||||||||||||
Equity Forwards [Member] | Significant Unobservable Inputs (Level 3) [Member]
|
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Fair value of assets (liabilities) | 0 | [4] | 0 | [4] | ||||||||||||
Interest Rate Locks And Swaps [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
|
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Fair value of assets (liabilities) | (31.1) | [5] | (19.6) | [5] | ||||||||||||
Interest Rate Locks And Swaps [Member] | Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member]
|
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Fair value of assets (liabilities) | 0 | [5] | 0 | [5] | ||||||||||||
Interest Rate Locks And Swaps [Member] | Significant Other Observable Inputs (Level 2) [Member]
|
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Fair value of assets (liabilities) | (31.1) | [5] | (19.6) | [5] | ||||||||||||
Interest Rate Locks And Swaps [Member] | Significant Unobservable Inputs (Level 3) [Member]
|
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Fair value of assets (liabilities) | 0 | [5] | 0 | [5] | ||||||||||||
Foreign Currency Forwards [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
|
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Fair value of assets (liabilities) | (0.2) | [6] | 0.6 | [6] | ||||||||||||
Foreign Currency Forwards [Member] | Quoted Prices In Active Market For Identical Assets (Liabilities) (Level 1) [Member]
|
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Fair value of assets (liabilities) | 0 | [6] | 0 | [6] | ||||||||||||
Foreign Currency Forwards [Member] | Significant Other Observable Inputs (Level 2) [Member]
|
||||||||||||||||
Fair value of assets (liabilities) | (0.2) | [6] | 0.6 | [6] | ||||||||||||
Foreign Currency Forwards [Member] | Significant Unobservable Inputs (Level 3) [Member]
|
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Fair value of assets (liabilities) | $ 0 | [6] | $ 0 | [6] | ||||||||||||
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Basis of Presentation
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 27, 2011
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation Darden Restaurants, Inc. (we, our or the Company) owns and operates full-service dining restaurants in the United States and Canada under the trade names Red Lobster®, Olive Garden®, LongHorn Steakhouse®, The Capital Grille®, Bahama Breeze®, Seasons 52®, Eddie V's Prime Seafood® and Wildfish Seafood Grille®. We have prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the quarter ended November 27, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending May 27, 2012. These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2011. The accounting policies used in preparing these consolidated financial statements are the same as those described in our Form 10-K. We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. The preparation of these financial statements requires us 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 sales and costs and expenses during the reporting period. Actual results could differ from those estimates. We have reclassified certain amounts in the prior-period consolidated statement of cash flows to conform to the current period’s presentation. Unless otherwise noted, amounts and disclosures throughout the notes to consolidated financial statements relate to our continuing operations. Unearned Revenues Unearned revenues represent our liability for gift cards that have been sold but not yet redeemed. We recognize sales from our gift cards when the gift card is redeemed by the customer. Although there are no expiration dates or dormancy fees for our gift cards, based on our analysis of our historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage”. We recognize breakage within sales for unused gift card amounts in proportion to actual gift card redemptions, which is also referred to as the “redemption recognition” method. The estimated value of gift cards expected to remain unused is recognized over the expected period of redemption as the remaining gift card values are redeemed, generally over a period of 10 years. Utilizing this method, we estimate both the amount of breakage and the time period of redemption. If actual redemption patterns vary from our estimates, actual gift card breakage income may differ from the amounts recorded. We update our estimates of our redemption period and our breakage rate periodically and apply that rate to gift card redemptions. Acquisition of Eddie V's On November 14, 2011, we completed the acquisition of eight Eddie V's Prime Seafood restaurants and three Wildfish Seafood Grille restaurants (collectively Eddie V's) and all related assets and net working capital for $59.2 million in cash. The results of operations from Eddie V's, which are immaterial, are included in our consolidated financial statements from the date of acquisition. The acquisition resulted in the recording of depreciable assets, definite-lived amortizable intangible assets and indefinite-lived intangible assets, including goodwill. We are in the process of confirming, through internal studies and third-party valuations, the fair value of these assets, including buildings and equipment and intangible assets. The fair values set forth below are based on preliminary valuations and are subject to adjustment as additional information is obtained. When the valuation process is completed, adjustments to goodwill may result. The preliminary allocation of the purchase price is as follows:
The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill, all of which is expected to be deductible for tax purposes. Trademarks primarily have an indefinite life based on the expected use of the assets and the regulatory and economic environment within which they are being used. These trademarks represent highly respected brands with positive connotations and we intend to cultivate and protect the use of these brands. Goodwill and indefinite-lived trademarks are not amortized but are reviewed annually for impairment or more frequently if indicators of impairment exist. Buildings and equipment will be depreciated over a period of 5 months to 23 years. Other assets and liabilities represent value associated with favorable and unfavorable market leases and will be amortized over a weighted average period of 16 years. As a result of the acquisition and related integration efforts, we incurred expenses of approximately $1.3 million during the quarter ended November 27, 2011, which are included in selling, general and administrative expenses in our consolidated statements of earnings. Pro-forma financial information of the combined entities for periods prior to the acquisition is not presented due to the immaterial impact of the financial results of Eddie V's on our consolidated financial statements. |