10-K

UNITED STATES

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 25, 2008

OR

¨ 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 incorporation or organization)	(IRS Employer Identification No.)
5900 Lake Ellenor Drive, Orlando, Florida	32809
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (407) 245-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, without par value and Preferred Stock Purchase Rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x.

Indicate by check mark if 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.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x            Accelerated filer  ¨            Non-accelerated filer  ¨            Smaller reporting company  ¨

    (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x.

The aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $39.40 per share as reported on the New York Stock Exchange on November 25, 2007, was approximately: $5,653,774,471.

Number of shares of Common Stock outstanding as of June 30, 2008: 140,446,512 (excluding 139,499,953 shares held in the Company’s treasury).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders on September 12, 2008, to be filed with the Securities and Exchange Commission no later than 120 days after May 25, 2008, are incorporated by reference into Part III, and portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended May 25, 2008 are incorporated by reference into Parts I and II of this Report.

DARDEN RESTAURANTS, INC.

FORM 10-K

FISCAL YEAR ENDED MAY 25, 2008

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	Submission of Matters to a Vote of Security Holders	21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8.	Financial Statements and Supplementary Data	22
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	23
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	23
Item 11.	Executive Compensation	23
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	23
Item 13.	Certain Relationships and Related Transactions, and Director Independence	23
Item 14.	Principal Accountant Fees and Services	24
PART IV
Item 15.	Exhibits and Financial Statement Schedules	25
Signatures		26

PART I

Item 1. BUSINESS

Introduction

Darden Restaurants, Inc. is the world’s largest company-owned and operated full service restaurant company¹, and served over 380 million meals in fiscal 2008. As of May 25, 2008, we operated through subsidiaries 1,702 restaurants in the United States and Canada. In the United States, we operated 1,667 restaurants in 49 states (the exception being Alaska), including 651 Red Lobster^®, 647 Olive Garden^®, 305 LongHorn Steakhouse^®, 32 The Capital Grille^®, 23 Bahama Breeze^®, and seven Seasons 52^® restaurants, and two specialty restaurants: Hemenway’s Seafood Grille & Oyster Bar^® and The Old Grist Mill Tavern^®. In Canada, we operated 35 restaurants, including 29 Red Lobster and six Olive Garden restaurants. Through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except three. Those three restaurants are located in Central Florida and are owned by joint ventures managed by us. The joint ventures pay management fees to us, and we control the joint ventures’ use of our service marks. None of our restaurants in the U.S. or Canada are franchised. Of our 1,702 restaurants open on May 25, 2008, 904 were located on owned sites and 798 were located on leased sites. As of May 25, 2008, we franchised five LongHorn Steakhouse restaurants in Puerto Rico to an unaffiliated franchisee, and 27 Red Lobster restaurants in Japan to an unaffiliated Japanese corporation, under area development and franchise agreements.

Darden Restaurants, Inc. is a Florida corporation incorporated in March 1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI, Inc. and certain other of our subsidiaries own and operate our restaurants. GMRI, Inc. was originally incorporated in March 1968 as Red Lobster Inns of America, Inc. We were acquired by General Mills, Inc. in 1970 and became a separate publicly held company in 1995 when General Mills distributed all of our outstanding stock to the stockholders of General Mills. Our principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407) 245-4000. Our corporate website address is www.darden.com. We make our reports on Forms 10-K, 10-Q and 8-K, and Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports available free of charge on our website the same day as the reports are filed with or furnished to the Securities and Exchange Commission. Information on our website is not deemed to be incorporated by reference into this Form 10-K. Unless the context indicates otherwise, all references to “Darden,” “we”, “our” or “us” include Darden Restaurants, Inc., GMRI, Inc. and our respective subsidiaries.

We have a 52/53 week fiscal year ending the last Sunday in May. Our 2008 fiscal year ended May 25, 2008, our 2007 fiscal year ended May 27, 2007, and our 2006 fiscal year ended May 28, 2006, and each had 52 weeks.

The following description of our business should be read in conjunction with the information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference in Item 7 of this Form 10-K and our consolidated financial statements incorporated by reference in Item 8 of this Form 10-K.

Background

We opened our first restaurant, a Red Lobster seafood restaurant, 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.

Red Lobster has grown from six restaurants in operation at the end of fiscal 1970 to 680 restaurants in North America by the end of fiscal 2008. Olive Garden, an internally developed Italian restaurant concept, opened

¹ Source: Nation’s Restaurant News, “Special Report: Top 100,” June 30, 2008 (based on U.S. revenues from company-owned restaurants).

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its first restaurant in Orlando, Florida in fiscal 1983, and by the end of fiscal 2008 had expanded to 653 restaurants in North America. The number of Red Lobster and Olive Garden restaurants open at the end of fiscal 2008 remained the same and increased by 39, respectively, as compared to the end of fiscal 2007.

Bahama Breeze is an internally developed concept that provides a Caribbean escape, offering the food, drinks and atmosphere you would find in the islands. In fiscal 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At the end of fiscal 2008, there were 23 Bahama Breeze restaurants.

Seasons 52 is an internally developed concept that provides a casually sophisticated fresh grill and wine bar with seasonally inspired menus offering fresh ingredients to create great tasting meals that are lower in calories than comparable restaurant meals. Seasons 52 opened its first restaurant in Orlando, Florida in fiscal 2003. At the end of fiscal 2008, there were seven Seasons 52 restaurants.

On August 16, 2007, we announced that we had entered into an agreement to purchase the common stock of RARE Hospitality International, Inc. (“RARE”) through a tender offer for $38.15 per share in cash, to be followed by a merger in which the remaining RARE shareholders would each receive $38.15 per share in cash, or approximately $1.27 billion in total purchase price. In addition, as a result of the acquisition, we repaid RARE’s 2.5 percent convertible notes for approximately $134.8 million, including $9.8 million related to a conversion premium. RARE owned and operated two principal restaurant concepts, LongHorn Steakhouse and The Capital Grille, of which 288 and 29 locations, respectively, were in operation as of the date of the acquisition, which was completed on October 1, 2007. LongHorn Steakhouse, with locations primarily in the Eastern half of the United States, is a leader in the full service dining steakhouse category, and The Capital Grille, with locations in major metropolitan cities in the United States, is a leader in the premium steakhouse category. RARE also had two specialty restaurants, Hemenway’s Seafood Grille & Oyster Bar and The Old Grist Mill Tavern, that were acquired in the merger. The acquired operations are included in our financial statements from the date of the acquisition.

The following table shows our growth and lists the number of restaurants operated by Red Lobster, Olive Garden, Bahama Breeze and Seasons 52 as of the end of each fiscal year since 1970, and the number of LongHorn Steakhouse and The Capital Grille restaurants operated by us at the end of fiscal 2008. The final column in the table lists our total sales for the years indicated.

Company-Operated Restaurants Open at Fiscal Year End

Fiscal Year	Red Lobster	Olive Garden	LongHorn Steakhouse	The Capital Grille	Bahama Breeze	Seasons 52	Total Restaurants (1)	Total Company Sales ($ in Millions) (2)(3)
1970	6						6	3.5
1971	24						24	9.1
1972	47						47	27.1
1973	70						70	48.0
1974	97						97	72.6
1975	137						137	108.5
1976	174						174	174.1
1977	210						210	229.2
1978	236						236	291.4
1979	244						244	337.5
1980	260						260	397.6
1981	291						291	528.4
1982	328						328	614.3
1983	360	1					361	718.5
1984	368	2					370	782.3
1985	372	4					376	842.2
1986	401	14					415	917.3
1987	433	52					485	1,097.7
1988	443	92					535	1,300.8
1989	490	145					635	1,621.5
1990	521	208					729	1,927.7

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Fiscal Year	Red Lobster	Olive Garden	LongHorn Steakhouse	The Capital Grille	Bahama Breeze	Seasons 52	Total Restaurants (1)		Total Company Sales ($ in Millions) (2)(3)
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			11		1,134		3,671.3
2001	661	477			16		1,154		3,966.2
2002	667	496			22		1,185		4,303.5
2003	673	524			25	1	1,223		4,530.4
2004	680	543			23	1	1,247		4,794.7
2005	679	563			23	3	1,268		4,977.6
2006	682	582			23	5	1,292		5,353.6
2007	680	614			23	7	1,324		5,567.1
2008	680	653	305	32	23	7	1,702	(4)	6,626.5

(1) Includes only Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 restaurants included in continuing operations. Excludes other restaurant concepts operated by us in these years that are no longer owned by us, and restaurants that were included in discontinued operations.

(2) From fiscal 1996 forward, includes only net sales from continuing operations and excludes sales related to all restaurants that were closed and considered discontinued operations. Periods prior to fiscal 1996 include total sales from all of our operations, including sales from restaurant concepts besides Red Lobster, Olive Garden, Bahama Breeze and Seasons 52 that are no longer owned or operated by us. Total company sales from 1970 through fiscal 1995 were included in the consolidated operations of our former parent company, General Mills, Inc., prior to our spin-off as a separate publicly traded corporation in May 1995.

(3) Emerging Issues Task Force Issue 00-14 “Accounting for Certain Sales Incentives” (“Issue 00-14”) 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 2008. Sales incentives for fiscal years prior to 1998 have not been reclassified.

(4) Includes two specialty restaurants: Hemenway’s Seafood Grille & Oyster Bar and The Old Grist Mill Tavern.

Strategy

The restaurant industry is generally considered to be comprised of two segments: quick service and full service. The full service segment 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 full service 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 full service 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:

• Integrity and fairness;

• Respect and caring;

• Diversity;

• Always learning/always teaching;

• Being “of service;”

• Teamwork; and

• Excellence.

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Our mission is to be “The best in full service dining, now and for generations.” We believe we can achieve this goal by continuing to build on our strategy to be a multi-brand full service restaurant growth company, which is grounded in our commitment to combining:

• Competitively superior leadership;

• Strong brand building that reflects brand management and restaurant operating excellence; and

• Brand support excellence.

Our strategic framework also includes two points that we believe separate us from our competition. We are committed to:

• Being a multi-brand restaurant company that is bound together by common operating practices and a unifying culture which serves to make us stronger than the sum of our parts; and

• Obtaining insights from our guests and employees to create powerful, broadly appealing brands and to develop successful people.

Restaurant Concepts

Red Lobster

Red Lobster is the largest full service 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 entrées, appetizers and desserts.

Most dinner menu entrée prices range from $9.75 to $35.50, with certain lobster items available by the pound and seasonal/regional fresh fish selections available on a daily fresh fish menu. Most lunch menu entrée prices range from $6.25 to $13.99. The price of most entrées includes salad, side items and our signature Cheddar Bay biscuits. During fiscal 2008, the average check per person ranged from $18.00 to $19.00, with alcoholic beverages accounting for approximately 7.6 percent of Red Lobster’s sales. Red Lobster maintains different lunch and dinner menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a lower-priced children’s menu.

Olive Garden

Olive Garden is the largest full service dining Italian restaurant operator in the United States. Olive Garden’s menu includes a variety of authentic Italian foods featuring fresh ingredients and a wine list that includes a broad selection of wines imported from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sautéed 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.

Most dinner menu entrée prices range from $8.75 to $19.95, and most lunch menu entrée prices range from $5.95 to $11.95. The price of each entrée also includes as much fresh salad or soup and breadsticks as a guest desires. During fiscal 2008, the average check per person ranged from $14.75 to $15.75, with alcoholic beverages accounting for approximately 8.0 percent of Olive Garden’s sales. Olive Garden maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic difference in consumer preferences, prices and selections, as well as children’s menus.

LongHorn Steakhouse

Acquired by Darden in October 2007 as part of the RARE acquisition, LongHorn Steakhouse restaurants are full service establishments serving both lunch and dinner in an attractive and inviting atmosphere reminiscent of the classic American West. With locations in 28 states, primarily in the Eastern half of the United States, LongHorn Steakhouse restaurants feature a variety of top quality menu items including signature fresh steaks, as well as salmon, shrimp, chicken, ribs, pork chops, burgers and prime rib.

Most dinner menu entrée prices range from $12.00 to $20.00, and most lunch menu entrée prices range from $8.00 to $12.00. The price of each entrée also includes as much freshly baked bread as a guest desires. During

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fiscal 2008, the average check per person ranged from $17.00 to $18.00, with alcoholic beverages accounting for approximately 9.8 percent of LongHorn Steakhouse’s sales. LongHorn Steakhouse maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as one children’s menu.

The Capital Grille

Acquired by Darden in October 2007, The Capital Grille has locations in major metropolitan cities in the United States and features relaxed elegance and style. Nationally acclaimed for dry aging steaks on the premises, The Capital Grille is also known for fresh seafood flown in daily and culinary specials created by its chefs. The restaurants feature an award-winning wine list offering over 300 selections, personalized service, comfortable club-like atmosphere and premiere private dining rooms.

Most dinner menu entrée prices range from $23.00 to $55.00 and most lunch menu entrée prices range from $8.00 to $36.00. During fiscal 2008, the average check per person ranged from $68.50 to $75.00, with alcoholic beverages accounting for approximately 33.3 percent of The Capital Grille’s sales. The Capital Grille maintains different menus and for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections.

Bahama Breeze

Bahama Breeze restaurants bring guests the feeling of a Caribbean escape, offering food, drinks and atmosphere you would find in the islands. The menu features distinctive, Caribbean-inspired fresh seafood, chicken and steaks as well as signature specialty drinks. 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. While the concept continued to be well received by guests, its financial performance did not meet our overall expectations, and in the fourth quarter of fiscal 2004 Bahama Breeze closed six restaurants and wrote down the carrying value of four others. This action reduced the total number of restaurants in operation to 32, and all new restaurant expansion was postponed.

Since fiscal 2004, Bahama Breeze has implemented changes to become a more relevant brand for its guests, evolve its menu to make it more approachable yet still distinctive and improve the guest experience while lowering its operating costs. In fiscal 2007, Bahama Breeze wrote down the carrying value of five restaurants and closed nine but improved the guest experience and unit economics sufficiently at the remaining restaurants that we are restarting modest unit growth, with two projected new restaurant openings in fiscal 2009. The results of operations of the nine closed restaurants are reported as a component of discontinued operations in the accompanying consolidated financial statements.

Most dinner menu entrée prices at Bahama Breeze range from $9.00 to $23.00, and most lunch entrée prices range from $7.00 to $14.00. During fiscal 2008, the average check per person ranged from $22.00 to $23.00, with alcoholic beverages accounting for approximately 23 to 24 percent of Bahama Breeze’s sales. Bahama Breeze maintains different menus for dinner and lunch and different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as two children’s menus.

Seasons 52

Seasons 52 is a casually sophisticated fresh grill and wine bar with seasonally inspired menus offering fresh ingredients to create great tasting meals that are lower in calories than comparable restaurant meals. It offers an international wine list of more than 130 wines, with 70 available by the glass. The first Seasons 52 opened in 2003, and currently operates seven existing restaurants with plans to open one new restaurant in fiscal 2009.

Discontinued Operations

In fiscal 2007, we announced the closure of 54 Smokey Bones Barbeque & Grill restaurants and two Rocky River Grillhouse restaurants, and our intention to offer for sale the remaining 73 operating Smokey Bones restaurants. Smokey Bones featured barbequed pork, beef and chicken, as well as other grilled favorites, all served

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in a lively yet comfortable mountain-lodge setting that featured televised sports. We opened the first Smokey Bones in September 1999, and began national expansion of the concept in fiscal 2002. The concept was designed to be a nationally advertised brand, but since it was not on a path to achieving that vision, we concluded it was not a meaningful growth vehicle for Darden. From December 2007 through February 2008, we closed the sale of 72 of the Smokey Bones restaurants. The sale of the remaining restaurant was completed in June 2008. Also in fiscal 2007, we closed nine Bahama Breeze restaurants. The results of operations for these restaurants are treated as a component of discontinued operations in the accompanying consolidated financial statements.

Recent and Planned Growth

On a continuing operations basis, during fiscal 2008, we opened 65 new restaurants (excluding the relocation of existing restaurants to new sites and the rebuilding of restaurants at existing sites). Our actual and projected new openings from continuing operations by concept (excluding relocations and rebuilds) are shown below.

	Actual New Restaurant Openings Fiscal 2008	Projected New Restaurant Openings Fiscal 2009
Red Lobster	4	10-13
Olive Garden	40	39-43
LongHorn Steakhouse	18 (1)	20-24
The Capital Grille	3 (1)	5-6
Bahama Breeze	0	1-2
Seasons 52	0	1
Totals	65	76-89

(1) Actual openings during the period from October 1, 2007, the effective date of the RARE acquisition, through the end of fiscal 2008.

The actual number of openings for each of our concepts will depend on many factors, including 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. Our objective is to continue to expand all of our restaurant concepts, and to develop or acquire additional concepts that can be expanded profitably. We have continued to test new ideas and concepts, and also to evaluate potential acquisition candidates to assess whether they would satisfy our strategic and financial objectives.

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 approximately 180 days on average after permits are obtained and the site is acquired.

The following table illustrates the approximate average capital investment, size and dining capacity of the nine Red Lobster restaurants (four new restaurants and five relocations) and 41 Olive Garden restaurants (40 new restaurants and one relocation) that were opened during fiscal 2008, and the 18 LongHorn Steakhouse restaurants (18 new restaurants and no relocations) opened during fiscal 2008 since the acquisition of RARE on October 1, 2007.

	Capital Investment(1)		Square Feet(2)	Dining Seats(3)	Dining Tables(4)
Red Lobster	$	4,408,000	7,012	232	54
Olive Garden	$	3,904,000	7,336	229	56
LongHorn Steakhouse	$	3,207,000	5,592	174	41

(1) Estimated final cost includes net present value of lease obligations and working capital credit, but excludes internal overhead.

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(2) Includes all space under the roof, including the coolers and freezers.

(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 one 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 2008, as discussed in “Discontinued Operations” above, we sold 72 Smokey Bones restaurants along with the one Smokey Bones restaurant that sold in fiscal 2009. During fiscal 2008, we also permanently closed three Red Lobster restaurants, one Olive Garden restaurant, and no Bahama Breeze or Seasons 52 restaurants. Following the acquisition of RARE on October 1, 2007, we permanently closed one LongHorn Steakhouse restaurant and no The Capital Grille restaurants. We continue to evaluate our site locations in order to minimize the risk of future closures or asset impairment charges.

Restaurant Operations

We believe that high-quality restaurant management is critical to our long-term success. Our restaurant management structure varies by concept and restaurant size. 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 recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with our operating standards.

Each Red Lobster, Olive Garden, Bahama Breeze and Seasons 52 restaurant is led by a general manager and three to five additional managers, depending on the operating complexity and sales volume of the restaurant. Each restaurant also employs approximately 50-185 hourly employees, most of whom work part-time. Restaurant general managers report to multi unit supervisors who may be directors or vice presidents. At the end of fiscal 2008, each multi unit supervisor was responsible for approximately six to 10 restaurants. Restaurants are visited regularly by all levels of supervision to help ensure strict adherence to all aspects of our standards.

The management staff of a typical LongHorn Steakhouse and The Capital Grille restaurant consists of one managing partner, one to four assistant managers and one or two kitchen managers. In addition, each of these restaurants employs approximately 40 to 80 hourly employees. The managing partner of each restaurant reports directly to a multi unit supervisor who may be a regional manager or regional director. Multi unit supervisors have operational responsibility for approximately three to nine restaurants. Regional directors at The Capital Grille also have responsibility for The Old Grist Mill Tavern, and Hemenway’s Seafood Grille & Oyster Bar restaurants. Restaurants are visited regularly by all levels of supervision to help ensure strict adherence to all aspects of our standards.

Each concept’s head of training, together with senior operations executives, are 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. This program has now been expanded to include both LongHorn Steakhouse and The Capital Grille personnel as part of the integration of RARE. 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 for up to three weeks after the opening. They are re-deployed as appropriate to enable a smooth transition to the restaurant’s operating staff.

We maintain performance measurement and incentive compensation programs for our management-level employees. We believe that our leadership position, strong success-oriented culture and various short-term and long-term incentive programs, including stock units, help attract and retain highly motivated restaurant managers. With

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the acquisition of RARE, we also have continued a managing partner program in which qualifying general managers of LongHorn Steakhouse and The Capital Grille restaurants receive cash compensation and restricted stock awards based upon individual performance.

Quality Assurance

Our Total Quality Department helps ensure that all restaurants provide safe, 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” by our international team of Quality Specialists in several foreign countries, we purchase only seafood that meets or exceeds our specifications. We use independent third parties to inspect and evaluate commodity vendors. In addition, any commodity supplier that produces a “high risk” product is subject to a food safety evaluation by Darden personnel at least annually. We require our suppliers to maintain sound manufacturing practices and operate with the comprehensive Hazard Analysis and Critical Control Point (“HACCP”) food safety programs adopted by the U.S. Food and Drug Administration. The HACCP programs focus on preventing hazards that could cause food-borne illnesses by applying scientifically-based controls to analyze hazards, identify and monitor critical control points, and establish corrective actions when monitoring shows that a critical limit has not been met. Since 1976, we have required routine microbiological testing of seafood and other commodities for quality and microbiological safety. In addition, our total quality managers and third party auditors visit each restaurant periodically throughout the year to review food handling and to provide education and training in food safety and sanitation. The total quality managers also serve as a liaison to regulatory agencies on issues relating to food safety. This HACCP program has now been expanded to include both LongHorn Steakhouse and The Capital Grille operations as part of the integration of RARE.

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 on reliable sources of procurement. Our purchasing staff sources, negotiates and purchases food and supplies from more than 2,000 suppliers in more than 30 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 usually source our product directly from producers (not brokers or middlemen). We operate procurement offices in Singapore and Toronto, our only purchasing offices outside of Orlando, to source products directly from Asia and Canada. While the supply of certain seafood species is volatile, we believe 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 sales. Controlled inventories of specified products are distributed to restaurants through independent national distribution companies. In addition, through strategic alliances between Darden Direct Distribution, Inc. and these distribution companies, we maintain inventory ownership and dedicated operations in select environments enhancing our supply chain’s competitive advantage.

Our supplier diversity program is an integral part of our purchasing efforts. Through this program, we identify minority and women-owned vendors and assist them in establishing supplier relationships with us. We are committed to the development and growth of minority and women-owned enterprises, and in fiscal 2008 we spent approximately 9 percent and 3 percent, respectively, of our purchasing dollars with those firms.

We continue to invest in new technologies to improve our purchasing and restaurant operations. We are in the process of expanding “iKitchen,” a web-based software system, to our regional suppliers. The system is designed to more efficiently handle restaurant product orders, receiving, invoice approval and inventories.

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Advertising and Marketing

We believe we have developed significant marketing and advertising capabilities. Our size enables us to be a leading advertiser in the full service dining segment of the restaurant industry. Red Lobster and Olive Garden leverage the efficiency of national network television advertising and supplement it with local television advertising. LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 do not use national television advertising. Our restaurants appeal to a broad spectrum of consumers and we use advertising to attract customers. We implement periodic promotions as appropriate to maintain and increase our sales and profits. We also rely on outdoor billboard and direct mail advertising, as well as radio, newspaper and direct mail coupon 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 2008, we employed approximately 179,000 persons. Of these employees, approximately 1,550 were corporate or restaurant concept personnel located in our restaurant support center in Orlando, Florida, approximately 50 were corporate personnel located in Atlanta, Georgia, approximately 8,000 were restaurant management personnel in the restaurants or in field offices, and the remainder were hourly restaurant personnel. Of the corporate and restaurant concept personnel located at our restaurant support center in Orlando and Atlanta, approximately 65 percent were management personnel and the balance were administrative or office employees. Our operating executives have an average of more than 11 years of experience with us. The restaurant general managers average nine 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.

Information Technology

We strive for leadership in the restaurant business by using technology as a competitive advantage and as an enabler of our strategy. 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. Several years ago, we implemented a suite of web-enabled and fully integrated financial and human resource (including payroll and benefits) systems. We also implemented a high-speed data network connecting all restaurants to all current and anticipated future applications. During the past year, we completed the implementation of “DASH,” a next generation technology platform for our restaurant point of sale system in Olive Garden, Red Lobster, Bahama Breeze and Seasons 52 restaurants. We expect to deploy the new platform, including new hardware and software, to all LongHorn Steakhouse and The Capital Grille restaurants over the next year. In the past year, we completed the implementation of a meal pacing system in Olive Garden and Red Lobster. The new meal pacing system is designed to properly pace the preparation of menu items, based on cook-times, to enhance the guest’s experience and enhance restaurant capacity by increasing table turns. We are also in the process of expanding “iKitchen,” a web-based software system designed to more efficiently handle restaurant product orders and other related matters, to regional suppliers as discussed above under “Purchasing and Distribution.”

In the past year, we began integrating the LongHorn Steakhouse and The Capital Grille restaurant businesses into the Company’s core business processes and applications. We completed the integration and implementation effort for the financial systems and began to deploy several other key applications including human resources systems, “iKitchen,” and “Par Pull,” a web-based software system designed to more efficiently handle food and menu item preparation. We expect to have our human resource applications and “iKitchen” fully deployed in fiscal 2009 in all LongHorn Steakhouse and The Capital Grille restaurants and “Par Pull” fully deployed in fiscal 2009 in all LongHorn Steakhouse restaurants.

Restaurant hardware and software support for all of our restaurant concepts, including the newly integrated LongHorn Steakhouse and The Capital Grille concepts, 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

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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 secure 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 host-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 that our current systems and practice of implementing regular updates 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 the type and quality of food, price, service, restaurant location, personnel, concept, attractiveness of facilities, and effectiveness of advertising and marketing. 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 and locally-owned restaurants for customers, management and hourly personnel and suitable real estate sites. We also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées 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 “Purchasing and Distribution,” “Advertising and Marketing” and “Information Technology” and in our Risk Factors in Item 1A of this Form 10-K.

Trademarks, Franchises and Joint Ventures

We regard our Darden Restaurants^®, Red Lobster^®, Olive Garden^®, LongHorn Steakhouse^®, The Capital Grille^®, Bahama Breeze^®, and Seasons 52^® service marks, and other service marks related to our restaurant businesses, as having significant value and as being important to our marketing efforts. Our policy is to pursue registration of our important service marks and trademarks and to oppose vigorously any infringement of them. Generally, with appropriate renewal and use, the registration of our service marks will continue indefinitely.

All but three of our 1,702 restaurants in operation at May 25, 2008 are Company-owned and operated. Those three restaurants are located in Central Florida and are owned by joint ventures managed by us. The joint ventures pay management fees to us, and we control the joint ventures’ use of our service marks. We have one unaffiliated franchisee with an area development and franchise agreement with the right to operate franchised LongHorn Steakhouse restaurants in Puerto Rico. As of May 25, 2008, this franchisee operated five LongHorn Steakhouse restaurants in Puerto Rico. Our only other restaurant operations outside of North America are conducted through an area development and franchise agreement with an unaffiliated Japanese corporation. This corporation operated 27 Red Lobster restaurants in Japan as of May 25, 2008. We do not have an ownership interest in this corporation, but we receive royalty income under the franchise agreement. The amount of income we derive from these joint venture and franchise arrangements is not material to our consolidated financial statements.

Seasonality

Our sales volumes fluctuate seasonally. During fiscal 2008, 2007 and 2006, our average sales per restaurant were highest in the spring and winter, followed by the summer, and lowest in the fall. Holidays, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

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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.

During fiscal 2008, approximately 9.2 percent of our sales were 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 serves alcoholic beverages to an intoxicated person who then causes injury to himself or a third party. 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 2008 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.

We are subject to federal and state environmental regulations, but these rules have not had a material effect on our operations. During fiscal 2008, there were no material capital expenditures for environmental control facilities and no material expenditures for this purpose are anticipated.

Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related state accessibility statutes. Under the ADA and related state laws, we must provide equivalent service to disabled persons and make reasonable accommodation for their employment, and when constructing or undertaking significant remodeling of our restaurants, we must make those facilities accessible.

We are subject to laws and regulations relating to nutritional content, nutritional labeling, product safety and menu labeling. Multi-jurisdictional regulations relating to nutritional labeling may lead to increased operational complexity and expenses and may impact guest behavior.

Cautionary Statement Regarding Forward-Looking Statements

This report may contain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Darden Restaurants, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described in this report, including under the heading “Risk Factors,” and the documents incorporated by reference in this report. We undertake no obligation to update publicly or revise any forward-looking statements for any reason, whether as a result of new information, future events or otherwise.

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Executive Officers of the Registrant

Our executive officers as of the date of this report are listed below.

Clarence Otis, Jr., age 52, has been our Chairman of the Board since November 2005, Chief Executive Officer since November 2004, and a Director since September 2004. Mr. Otis was our Executive Vice President from March 2002 until November 2004 and President of Smokey Bones Barbeque & Grill from December 2002 until November 2004. He served as our Senior Vice President from December 1999 until March 2002, and our Chief Financial Officer from December 1999 until December 2002. He joined us in 1995 as Vice President and Treasurer. He served as our Senior Vice President, Investor Relations from July 1997 to August 1998, and as Senior Vice President, Finance and Treasurer from August 1998 until December 1999. From 1991 to 1995, he was employed by Chemical Securities, Inc. (now J.P. Morgan Securities, Inc.), an investment banking firm, where he had been Managing Director and Manager of Public Finance.

Andrew H. (Drew) Madsen, age 52, has been our President and Chief Operating Officer since November 2004, and a Director since September 2004. Mr. Madsen was our Senior Vice President and President of Olive Garden from March 2002 until November 2004, and Executive Vice President of Marketing for Olive Garden from December 1998 to March 2002. 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 held various positions at James River Corporation (now part of Georgia-Pacific Corporation, a diversified paper and building products manufacturer), including Vice President and General Manager for the Dixie consumer products unit. From 1980 until 1992, he held various marketing positions with our former parent company, General Mills, Inc. a manufacturer and marketer of consumer food products.

James (J.J.) Buettgen, age 48, has been our Senior Vice President, Business Development since May 2007. He served as our Senior Vice President and President of Smokey Bones Barbeque & Grill from November 2004 until May 2007, and our Senior Vice President and President-designate of Smokey Bones from August 2004 until November 2004. From July 2003 until August 2004, he was President of Big Bowl Asian Kitchen, a full service dining company owned by Brinker International, Inc., a restaurant operator, and from October 2002 until June 2003 he was Senior Vice President of Marketing and Brand Development for Brinker. From 1999 to 2002, he was Senior Vice President of Marketing and Sales for Disneyland Resorts, a division of the Walt Disney Company, where he helped launch Disney’s California Adventure theme park, and from 1998 to 1999 was Senior Vice President of Marketing for Hollywood Entertainment Group, a video retailer. He held several marketing posts with our former parent company, General Mills, Inc., a manufacturer and marketer of consumer food products, from 1989 through 1994, and served first as a director, next as Vice President, and then as Senior Vice President of Marketing for Olive Garden from 1994 until 1998.

Valerie K. Collins, age 49, has been our Senior Vice President, Corporate Controller since December 2006, and was Senior Vice President, Corporate Controller, and Chief Information Officer from December 2006 until September 2007. She served as our Senior Vice President and Chief Information Officer from January 2003 until December 2006, and Senior Vice President, Finance and Controller for Red Lobster from August 1998 until January 2003. She joined Red Lobster in 1985 as Manager of Accounting Systems and held progressively more responsible positions until being promoted to Vice President Finance and Controller for Olive Garden in 1994 and to Senior Vice President Finance and Controller for Olive Garden in 1996.

David George, age 52, has been our President of LongHorn Steakhouse since our acquisition of RARE on October 1, 2007. Prior to the acquisition, he served as RARE’s President of LongHorn Steakhouse from May 2003 until October 2007. From October 2001 until May 2003, he was RARE’s Senior Vice President of Operations for LongHorn Steakhouse, and from May 2000 until October 2001 was RARE’s Vice President of Operations for The Capital Grille.

Kim A. Lopdrup, age 50, has been our Senior Vice President and President of Red Lobster since May 2004. He joined us in November 2003 as Executive Vice President of Marketing for Red Lobster. From 2001 until 2002, he served as Executive Vice President and Chief Operating Officer for North American operations of Burger King Corporation, an operator and franchiser of fast food restaurants. From 1985 until 2001, he worked for Allied Domecq Quick Service Restaurants (“ADQSR”), a franchiser of quick service restaurants including Dunkin’ Donuts,

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Baskin-Robbins and Togo’s Eateries, where he held progressively more responsible positions in marketing, strategic and general management roles, eventually serving as Chief Executive Officer of ADQSR International.

Eugene I. (Gene) Lee, Jr., age 47, has been President of our Specialty Restaurant Group since our acquisition of RARE on October 1, 2007. Prior to the acquisition, he served as RARE’s President and Chief Operating Officer from January 2001 to October 2007. From January 1999 until January 2001, he served as RARE’s Executive Vice President and Chief Operating Officer.

Daniel M. Lyons, age 55, 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, an international marketer of food and beverage products, holding increasingly more responsible positions including Vice President Human Resources for the North American Breakfast Food Division.

Robert McAdam, age 50, has been our Senior Vice President of Government and Community Affairs since December 2006. Prior to joining us, he was employed by retailer Wal-Mart Inc. as Vice President, Corporate Affairs from 2004 to 2006, and Vice President, State and Local Government Relations from 2000 to 2004. From 1997 to 2000 he was a Senior Vice President of Fleishman-Hillard, an international public relations firm.

David T. Pickens, age 53, has been our Senior Vice President and President of Olive Garden since December 2004. He joined us in 1973 as a Red Lobster hourly employee and progressed from manager trainee to regional operations manager, director of operations, and ultimately was promoted to a division Senior Vice President of Operations for Red Lobster. He joined Olive Garden in 1995 as Senior Vice President of Operations for the Orlando division and was promoted to Executive Vice President of Operations in September 1999, where he served until his promotion to President of Olive Garden in December 2004.

C. Bradford (Brad) Richmond, age 49, has been our Senior Vice President and Chief Financial Officer since December 2006. From August 2005 to December 2006, he served as our Senior Vice President and Corporate Controller. He served as Senior Vice President Finance, Strategic Planning and Controller of Red Lobster from January 2003 to August 2005, and previously was Senior Vice President, Finance and Controller at Olive Garden from August 1998 to January 2003. He joined us in 1982 as a food and beverage analyst for Casa Gallardo, a restaurant concept formerly owned and operated by us, and from June 1985 to August 1998 held progressively more responsible finance and marketing positions with our York Steak House, Red Lobster and Olive Garden operating companies in both the United States and Canada.

Paula J. Shives, age 57, has been our Senior Vice President, General Counsel and Secretary since June 1999. Prior to joining us, she served as Senior Vice President, General Counsel and Secretary from 1995 to 1999, and Associate General Counsel from 1985 to 1995, of Long John Silver’s Restaurants, Inc., a seafood restaurant company.

Item 1A. RISK FACTORS

Various risks and uncertainties could affect our business. Any of the risks described below or elsewhere in this report or our other filings with the Securities and Exchange Commission could have a material impact on our business, financial condition or results of operations. It is not possible to predict or identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. Therefore, the following is not intended to be a complete discussion of all potential risks or uncertainties.

We face intense competition, and if we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.

The full service dining sector of the restaurant industry is intensely competitive with respect to pricing, service, location, personnel and type and quality of food, and there are many well-established competitors. We compete within each market with national and regional restaurant chains and locally-owned restaurants. We also face growing competition as a result of the trend toward convergence in grocery, deli and restaurant services, particularly in the supermarket industry which offers “convenient meals” in the form of improved entrées and side dishes from

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the deli section. We compete primarily on the quality, variety and value perception of menu items. The number and location of restaurants, type of concept, 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 with respect to all of these factors. If we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.

Certain economic and business factors specific to the restaurant industry and certain general economic factors including energy prices and interest rates that are largely out of our control may adversely affect our results of operations.

Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control. The full service dining sector of the restaurant industry is affected by changes in national, regional and local economic conditions, seasonal fluctuation of sales volumes, consumer spending patterns and consumer preferences, including changes in consumer tastes and dietary habits, the level of consumer acceptance of our restaurant concepts and health concerns. For example, health concerns relating to the consumption of beef or to specific events such as the outbreak of “mad cow disease” may adversely impact sales at LongHorn Steakhouse and The Capital Grille restaurants that offer beef as a primary menu item. In addition, public concern over “avian flu” may cause fear about the consumption of chicken, eggs and other products derived from poultry. The inability to serve beef or poultry-based products would restrict our ability to provide a variety of menu items to our guests. If we change a restaurant concept or menu in response to such concerns, we may lose customers who do not prefer the new concept or menu, and we may not be able to attract a sufficient new customer base to produce the revenue needed to make the restaurant profitable. We also may have different or additional competitors for our intended customers as a result of such a concept change and may not be able to successfully compete against such competitors. The performance of individual restaurants may also be adversely affected by factors such as demographic trends, severe weather including hurricanes, traffic patterns and the type, number and location of competing restaurants.

General economic conditions may also adversely affect our results of operations. Recessionary economic cycles, a protracted economic slowdown, a worsening economy, increased energy prices, rising interest rates or other industry-wide cost pressures could affect consumer behavior and spending for restaurant dining occasions and lead to a decline in sales and earnings. When gasoline, natural gas, electricity and other energy costs increase, and credit card, home mortgage and other borrowing costs increase with rising interest rates, our guests may have lower disposable income and reduce the frequency with which they dine out, or may choose more inexpensive restaurants when eating outside the home. Furthermore, we cannot predict the effects that actual or threatened armed conflicts, terrorist attacks, efforts to combat terrorism, heightened security requirements, or a failure to protect information systems for critical infrastructure, such as the electrical grid and telecommunications systems, could have on our operations, the economy or consumer confidence generally. Any of these events could affect consumer spending patterns or result in increased costs for us due to security measures.

Unfavorable changes in the above factors or in other business and economic conditions affecting our customers could increase our costs, reduce traffic in some or all of our restaurants or impose practical limits on pricing, any of which could lower our profit margins and have a material adverse affect on our financial condition and results of operations.

The price and availability of food, ingredients and utilities used by our restaurants could adversely affect our revenues and results of operations.

Our results of operations depend significantly on our ability to anticipate and react to changes in the price and availability of food, ingredients, utilities and other related costs over which we may have little control. Operating margins for our restaurants are subject to changes in the price and availability of food commodities, including shrimp, lobster, crab and other seafood, as well as beef, pork, chicken, cheese and produce. The introduction of or changes to tariffs on imported shrimp or other food products could increase our costs and possibly impact the supply of those products. We are subject to the general risks of inflation. Our restaurants’ operating margins are also affected by fluctuations in the price of utilities such as electricity and natural gas, whether as a result of inflation or otherwise, on which the restaurants depend for their energy supply. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our results of operations.

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We may lose revenue or incur increased costs if our restaurants experience shortages or interruptions in the delivery of food and other supplies.

Possible shortages or interruptions in the supply of food items and other supplies to our restaurants caused by inclement weather, natural disasters such as floods and earthquakes, the inability of our vendors to obtain credit in a tightened credit market or other conditions beyond our control could adversely affect the availability, quality and cost of the items we buy and the operations of our restaurants. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products that are critical to our restaurant operations. If we temporarily close a restaurant or remove popular items from a restaurant’s menu, that restaurant may experience a significant reduction in revenue during the time affected by the shortage or thereafter as a result of our customers changing their dining habits.

We may be subject to increased labor and insurance costs.

Our restaurant operations are subject to federal and state laws governing such matters as minimum wages, working conditions, overtime and tip credits. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages and increased employee turnover could also increase our labor costs. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline. In addition, the current premiums that we pay for our insurance (including workers’ compensation, general liability, property, health, and directors’ and officers’ liability) may increase at any time, thereby further increasing our costs. The dollar amount of claims that we actually experience under our workers’ compensation and general liability insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our costs. Further, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured losses.

The loss of key personnel or difficulties recruiting and retaining qualified personnel could jeopardize our ability to meet our growth targets.

Our future growth depends substantially on the contributions and abilities of key executives and other employees. Our future growth also depends substantially on our ability to recruit and retain high quality employees to work in and manage our restaurants. We must continue to recruit, retain and motivate management and other employees sufficient to maintain our current business and support our projected growth. A loss of key employees or a significant shortage of high quality restaurant employees could jeopardize our ability to meet our growth targets.

We rely heavily on information technology in our operations, and any material failure, inadequacy, interruption or breach of security of that technology could harm our ability to effectively operate our business.

We rely heavily on information systems across our operations, including for management of our supply chain, point-of-sale processing in our restaurants, and various other processes and transactions. Our ability to effectively manage our business and coordinate the production, distribution and sale of our products depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with transitioning to updgraded or replacement systems, or a breach in security of these systems could cause delays in customer service and reduce efficiency in our operations, and significant capital investments could be required to remediate the problem.

Increased advertising and marketing costs could adversely affect our results of operations.

If our competitors increase their spending on advertising and promotions, if our advertising, media or marketing expenses increase, or if our advertising and promotions become less effective than that of our competitors, we could experience a material adverse effect on our results of operations.

We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.

Our revenues and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant and other expenses when we close, relocate or remodel existing

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restaurants. The expenses of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations.

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of our services, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations.

Unfavorable publicity could harm our business.

Multi-unit restaurant businesses such as ours can be adversely affected by publicity resulting from complaints or litigation or general publicity regarding poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of consumption of various food products or high-calorie foods (including obesity) or other concerns. Negative publicity may also result from actual or alleged violations by our restaurants of “dram shop” laws which generally provide an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated party who then causes injury to himself or to a third party. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants, or only to a single restaurant, could adversely affect public perception of the entire brand. Adverse publicity and its effect on overall consumer perceptions of food safety, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.

A lack of availability of suitable locations for new restaurants or a decline in the quality of the locations of our current restaurants may adversely affect our revenues and results of operations.

The success of our restaurants depends in large part on their location. As demographic and economic patterns change, current locations may not continue to be attractive or profitable. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced revenues in those locations. In addition, desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation. The occurrence of one or more of these events could have a significant adverse effect on our revenues and results of operations.

We are subject to a number of risks relating to federal, state and local regulation of our business that may increase our costs and decrease our profit margins.

The restaurant industry is subject to extensive federal, state and local laws and regulations, including those relating to building and zoning requirements and those relating to the preparation and sale of food. 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 and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and liquor licenses, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act of 1938, the Immigration Reform and Control Act of 1986 and applicable requirements concerning the minimum wage, overtime, family leave, tip credits, working conditions, safety standards and immigration status), 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. In addition, we are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. We also face risks from

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new and changing laws and regulations relating to nutritional content, nutritional labeling, product safety and menu labeling. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.

Our growth through the opening of new restaurants and the development or acquisition of new dining concepts may not be successful and could result in poor financial performance.

As part of our business strategy, we intend to continue to expand our current portfolio of restaurant concepts and to develop or acquire additional concepts that can be expanded profitably. This strategy involves numerous risks, and we may not be able to achieve our growth objectives. We may not be able to open all of our planned new restaurants, and the new restaurants that we open may not be profitable or as profitable as our existing restaurants. New restaurants typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly-opened restaurants generally do not make a significant contribution to profitability in their initial months of operation. The opening of new restaurants can also have an adverse effect on sales levels at existing restaurants. Furthermore, we may not be able to develop or acquire additional concepts that are as profitable as our existing restaurants. Growth through acquisitions may involve additional risks. For example, we may pay too much for a concept relative to the actual economic return, be required to borrow funds to make our acquisition (which would increase our interest expense) or be unable to integrate an acquired concept into our operations.

The ability to open and profitably operate restaurants is subject to various risks, such as the identification and availability of suitable and economically viable locations, the negotiation of acceptable lease or purchase terms for new locations, the need to obtain all required governmental permits (including zoning approvals and liquor licenses) on a timely basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or hand billing which could delay construction, increases in labor and building material costs, the availability of financing at acceptable rates and terms, changes in 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. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources. If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated revenues and earnings in future periods.

Our plans to expand our newer concepts Bahama Breeze and Seasons 52 that have not yet proven their long-term viability may not be successful, which could require us to make substantial further investments in those concepts and result in losses and impairments.

While each of our restaurant concepts, as well as each of our individual restaurants, are subject to the risks and uncertainties described above, there is an enhanced level of risk and uncertainty related to the operation and expansion of our newer concepts such as Bahama Breeze and Seasons 52. These concepts have not yet proven their long-term viability or growth potential. We have made substantial investments in the development and expansion of each of these concepts, and further investment is required. While we have implemented a number of changes to operations at Bahama Breeze, and believe we have improved the guest experience and unit economics sufficiently to restart modest unit growth in fiscal 2009, there can be no assurance that these changes will continue to be successful or that new unit growth will occur. Seasons 52 also is in the very early stages of its development and will require additional resources to support further growth. In each case, these brands will continue to be subject to the risks and uncertainties that accompany any emerging restaurant concept.

Failure to combine and integrate the business of RARE into our operations in a successful and timely manner could adversely affect our business.

We closed the acquisition of RARE on October 1, 2007. Our integration of RARE’s business into our operations is a complex and time-consuming process which will require significant efforts and expenses. Prior to the merger, the two companies operated independently, each with its own business, customers, employees, culture and systems. We may experience material unanticipated difficulties or expenses in connection with the integration of the business of RARE. The difficulties of combining the business of RARE with our operations may include, among others:

• retaining and integrating management and other key employees;

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• coordinating marketing functions;

• unanticipated issues in integrating information, communications and other systems;

• unanticipated incompatibility of purchasing, logistics, marketing and administration methods;

• consolidating corporate and administrative infrastructures;

• minimizing the diversion of management’s attention from ongoing business concerns; and

• failure to manage successfully and coordinate the growth of the combined company.

Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations.

Even if we successfully integrate the business of RARE into our operations, we may not realize the anticipated benefits of the RARE acquisition.

Even if we successfully integrate the business of RARE into our operations, there can be no assurance that the acquisition will result in the realization of the anticipated benefits. We acquired RARE with the expectation that the acquisition will result in various benefits for the combined company including, among others, business and growth opportunities and significant synergies from increased efficiency and effectiveness in purchasing, distribution and other restaurant and corporate support. However, we may not be able to realize the synergies, goodwill, business opportunities and growth prospects anticipated in connection with the acquisition. We may experience increased competition that limits our ability to expand our business, we may not be able to capitalize on expected business opportunities or general industry and business conditions may deteriorate. Achieving the anticipated benefits of the acquisition is subject to a number of uncertainties and other factors. If these factors limit our ability to achieve the anticipated benefits of the acquisition, our expectations of future results of operations, including the synergies expected to result from the acquisition, may not be met. If such difficulties are encountered or if such synergies, business opportunities and growth prospects are not realized, our business, financial condition and results of operations could be adversely affected.

We incurred substantial additional indebtedness to finance the RARE acquisition, which may decrease our business flexibility and increase our borrowing costs.

Our consolidated indebtedness following the RARE acquisition is substantially greater than our indebtedness prior to the acquisition. The increased indebtedness and higher debt-to-equity ratio of our company, as compared to that which existed on a historical basis, will have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing borrowing costs.

Our level of indebtedness could have important consequences. For example, it may:

• require a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements;

• limit our ability to obtain additional financing to fund working capital, capital expenditures, additional acquisitions or general corporate requirements, particularly if the ratings assigned to our debt securities by rating organizations were revised downward; and

• limit our flexibility to adjust to changing business and market conditions and make us more vulnerable to a downturn in general economic conditions as compared to our competitors.

There are various financial covenants and other restrictions in our debt instruments. If we fail to comply with any of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity. A default under our debt instruments may also significantly affect our ability to obtain additional or alternative financing.

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Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control.

Failure of our internal controls over financial reporting could harm our business and financial results.

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Our growth and acquisition of other restaurant companies with procedures not identical to our own could place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

Restaurant Properties – Continuing Operations

As of May 25, 2008, we operated 1,702 restaurants (consisting of 680 Red Lobster, 653 Olive Garden, 305 LongHorn Steakhouse, 32 The Capital Grille, 23 Bahama Breeze, seven Seasons 52, one The Old Grist Mill Tavern and one Hemenway’s Seafood Grille & Oyster Bar restaurants) in the following locations:

Alabama (37)	Indiana (49)	Nebraska (8)	South Carolina (35)
Arizona (36)	Iowa (15)	Nevada (13)	South Dakota (4)
Arkansas (12)	Kansas (16)	New Hampshire (10)	Tennessee (43)
California (100)	Kentucky (21)	New Jersey (43)	Texas (122)
Colorado (32)	Louisiana (12)	New Mexico (11)	Utah (14)
Connecticut (12)	Maine (8)	New York (50)	Vermont (2)
Delaware (7)	Maryland (34)	North Carolina (50)	Virginia (53)
District of Columbia (1)	Massachusetts (30)	North Dakota (4)	Washington (26)
Florida (189)	Michigan (58)	Ohio (103)	West Virginia (10)
Georgia (112)	Minnesota (25)	Oklahoma (17)	Wisconsin (19)
Hawaii (1)	Mississippi (12)	Oregon (12)	Wyoming (3)
Idaho (8)	Missouri (42)	Pennsylvania (81)	Canada (35)
Illinois (59)	Montana (2)	Rhode Island (4)

Of these 1,702 restaurants open on May 25, 2008, 904 were located on owned sites and 798 were located on leased sites. The 798 leases are classified as follows:

Land-Only Leases (we own buildings and equipment)	617
Ground and Building Leases	82
Space/In-Line/Other Leases	99
Total	798

Properties – General

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.

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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 financial statements.

All of the buildings that make up our executive offices, culinary center, training facilities and supporting warehouses in Orange County (Orlando metro area), Florida, are currently leased. On June 20, 2006, we entered into an agreement to sell and lease back the 10 buildings that we previously owned. The sale and the commencement of our leases for those buildings occurred in August 2006. The initial term of the leases is three years, and we have two one-year renewal options.

We purchased several adjacent parcels of vacant land in Orange County, Florida, and plan to relocate our headquarters to this site. Construction of the buildings on this site is underway. We expect our proposed Restaurant Support Center campus at this new location to offer a more collaborative and unified environment with additional room for future growth. We currently project completing the first phase of this development during fiscal 2010.

As part of the acquisition of RARE, we acquired ownership of the former RARE executive offices and central training facility located in 6 office buildings in Atlanta, Georgia. We recently completed the sale of one of those buildings. The remaining buildings are currently being marketed for sale.

Except in limited instances, our present restaurant sites and other facilities are not subject to mortgages or encumbrances securing money borrowed by us from outside sources. In our opinion, our current buildings and equipment generally are in good condition, suitable for their purposes and adequate for our current needs. See also Note 6 “Land, Buildings and Equipment, Net” and Note 14 “Leases” under Notes to Consolidated Financial Statements in our 2008 Annual Report to Shareholders, incorporated herein by reference.

Item 3. LEGAL PROCEEDINGS

We are subject to private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to operational issues common to the restaurant industry, and can also involve infringement of, or challenges to, our trademarks. While the resolution of a lawsuit, proceeding or claim may have an impact on our financial results for the period in which it is resolved, we believe that the final disposition of the lawsuits, proceedings and claims in which we are currently involved, either individually or in the aggregate, will not have a material adverse effect on our financial position, results of operations or liquidity. The following is a brief description of the more significant of these matters. In view of the inherent uncertainties of litigation, the outcome of any unresolved matter described below cannot be predicted at this time, nor can the amount of any potential loss be reasonably estimated.

Like other restaurant companies and retail employers, in a few states we have been faced with allegations of purported class-wide wage and hour violations. In January 2004, a former food server filed a purported class action in California state court alleging that Red Lobster’s “server banking” policies and practices (under which servers settle guest checks directly with customers throughout their shifts, and turn in collected monies at the shift’s end) improperly required her and other food servers and bartenders to make up cash shortages and walkouts in violation of California law. The case was ordered to arbitration. As a procedural matter, the arbitrator ruled that class-wide arbitration is permissible under our dispute resolution program. In January 2007, plaintiffs’ counsel filed in California state court a second purported class action lawsuit on behalf of servers and bartenders alleging that Olive Garden’s server banking policy and its alleged failure to pay split shift premiums violated California law. Although we believed that our policies and practices were lawful and that we had strong defenses to both cases, following mediation with the plaintiffs, we reached a tentative resolution of the matters during the third quarter of fiscal 2008. As a result, we accrued approximately $4.0 million in legal settlement costs during the nine months ended February 24, 2008, which we expect to be paid in fiscal 2009. No additional reserves have been taken in connection with this settlement.

In August 2007, an action was filed in California state court by a former Olive Garden server alleging that Olive Garden’s scheduling practices resulted in failure to properly pay reporting time (minimum shift) pay as well as to pay minimum wage, to provide itemized wage statements, and to timely pay employees upon the termination of

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their employment. The complaint sought to have the suit certified as a class action. Although we believed that our policies and practices were lawful and we had strong defenses, following mediation with the plaintiffs, we reached a preliminary settlement of this matter during the fourth quarter of fiscal 2008 under which we agreed to pay $0.7 million. We anticipate that the preliminary settlement amount will be paid out during fiscal 2009 at the completion of the settlement process.

On March 13, 2008, a purported class action complaint alleging violation of the federal securities laws was filed by an institutional shareholder against Darden and certain of our current officers, one of whom is also a director, in the United States District Court for the Middle District of Florida. The complaint was filed on behalf of all purchasers of Darden’s common stock between June 19, 2007 and December 18, 2007 (the “Class”). The complaint alleges that during that period, the defendants issued false and misleading statements in press releases and public filings that misrepresented and failed to disclose certain information, and that as a result, had no reasonable basis for statements about Darden’s prospects and guidance for fiscal 2008. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover unspecified damages on behalf of the Class. We intend to vigorously defend our position in this action.

By letter dated May 9, 2008, a putative shareholder demanded that our Board of Directors take action to remedy alleged breaches of fiduciary duty to the Company by certain officers and directors. The letter contains similar allegations to those in the purported class action described above regarding the alleged issuance of false and misleading statements and omissions regarding Darden’s financial results and sales growth. The Board has formed a special litigation committee to evaluate the claims in the letter.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal United States market on which our common shares are traded is the New York Stock Exchange, where our shares are traded under the symbol DRI. As of June 30, 2008, there were approximately 37,616 record holders of our common shares. The information concerning the dividends and high and low intraday sales prices for our common shares traded on the New York Stock Exchange for each full quarterly period during fiscal 2007 and 2008 contained in Note 21 “Quarterly Data (Unaudited)” under Notes to Consolidated Financial Statements in our 2008 Annual Report to Shareholders is incorporated herein by reference. We have not sold any securities during the last fiscal year that were not registered under the Securities Act of 1933.

The table below provides information concerning our repurchase of shares of our common stock during the quarter ended May 25, 2008. Since commencing our repurchase program in December 1995, we have repurchased a total of 147 million shares through May 25, 2008 under authorizations from our Board of Directors to repurchase an aggregate of 162.4 million shares.

Period	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)
February 25, 2008 through March 30, 2008	201,228	$	29.87	201,228	15,420,831
March 31, 2008 through April 27, 2008	297	$	29.01	297	15,420,534
April 28, 2008 through May 25, 2008	0	$	0.00	0	15,420,534
Total	201,525	$	29.86	201,525	15,420,534

(1) All of the shares purchased during the quarter ended May 25, 2008 were purchased as part of our repurchase program, the most recent authority for which was announced in a press release issued on June 20, 2006. 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 reduce the repurchase authority granted by our Board. The number of shares repurchased excludes shares we reacquired pursuant to forfeiture of restricted stock.

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(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 additional shares.

Item 6. SELECTED FINANCIAL DATA

The information for fiscal 2004 through 2008 contained in the Five-Year Financial Summary in our 2008 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” in our 2008 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” in our 2008 Annual Report to Shareholders is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Report of Management Responsibilities, Management’s Report on Internal Control Over Financial Reporting, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, Report of Independent Registered Public Accounting Firm, Consolidated Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements in our 2008 Annual Report to Shareholders are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of May 25, 2008, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 25, 2008.

During the fiscal quarter ended May 25, 2008, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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The annual report of our management on internal control over financial reporting, and the audit report of KPMG LLP, our independent registered public accounting firm, regarding our internal control over financial reporting in our 2008 Annual Report to Shareholders, are incorporated herein by reference.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information contained in the sections entitled “Proposal 1 – Election of Eleven Directors,” “Meetings of the Board of Directors and Its Committees,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for our 2008 Annual Meeting of Shareholders is incorporated herein by reference. Information regarding executive officers is contained in Part I above under the heading “Executive Officers of the Registrant.”

All of our employees are subject to our Code of Business Conduct and Ethics. Appendix A to the Code provides a special Code of Ethics with additional provisions that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions (the “Senior Financial Officers”). Appendix B to the Code provides a Code of Business Conduct and Ethics for members of our Board of Directors. These documents are posted on our internet website at www.darden.com and are available in print free of charge to any shareholder who requests them. We will disclose any amendments to or waivers of these Codes for directors, executive officers or Senior Financial Officers on our website.

We also have adopted a set of Corporate Governance Guidelines and charters for all of our Board Committees, including the Audit, Compensation, and Nominating and Governance Committees. The Corporate Governance Guidelines and committee charters are available on our website at www.darden.com and in print free of charge to any shareholder who requests them. Written requests for our Code of Business Conduct and Ethics, Corporate Governance Guidelines and committee charters should be addressed to Darden Restaurants, Inc., 5900 Lake Ellenor Drive, Orlando, Florida 32809, Attention: Corporate Secretary.

Item 11. EXECUTIVE COMPENSATION

The information contained in the sections entitled “Director Compensation,” “Executive Compensation,” “Compensation Committee Report” and “Corporate Governance” in our definitive Proxy Statement for our 2008 Annual Meeting of Shareholders is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the sections entitled “Stock Ownership Of Principal Shareholders,” “Stock Ownership Of Management” and “Executive Compensation - Equity Compensation Plan Information” in our definitive Proxy Statement for our 2008 Annual Meeting of Shareholders is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained in the section entitled “Corporate Governance - Related Party Transaction Policy and Procedures,” “Meetings of the Board of Directors and Its Committees” and “Corporate Governance” in our definitive Proxy Statement for our 2008 Annual Meeting of Shareholders is incorporated herein by reference.

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Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained in the section entitled “Independent Registered Public Accounting Firm Fees And Services” in our definitive Proxy Statement for our 2008 Annual Meeting of Shareholders is incorporated herein by reference.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements:

Report of Management Responsibilities.

Management’s Report on Internal Control over Financial Reporting.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.

Report of Independent Registered Public Accounting Firm.

Consolidated Statements of Earnings for the fiscal years ended May 25, 2008, May 27, 2007 and May 28, 2006.

Consolidated Balance Sheets at May 25, 2008 and May 27, 2007.

Consolidated Statements of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss) for the fiscal years ended May 25, 2008, May 27, 2007 and May 28, 2006.

Consolidated Statements of Cash Flows for the fiscal years ended May 25, 2008, May 27, 2007 and May 28, 2006.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedules:

Not applicable.

3. Exhibits:

The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-K and incorporated herein by reference. 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. The Exhibit Index specifically identifies with an asterisk each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. We will furnish copies of any exhibit listed on the Exhibit Index upon request upon the payment of a reasonable fee to cover our expenses in furnishing such exhibits.

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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: July 17, 2008	DARDEN RESTAURANTS, INC.
	By:	/s/ Clarence Otis, Jr.
		Clarence Otis, Jr., 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 dates indicated.

Signature	Title	Date
/s/ Clarence Otis, Jr. Clarence Otis, Jr.	Director, Chairman of the Board and Chief Executive Officer (Principal executive officer)	July 17, 2008
/s/ C. Bradford Richmond C. Bradford Richmond	Senior Vice President and Chief Financial Officer (Principal financial and accounting officer)	July 17, 2008
/s/ Leonard L. Berry* Leonard L. Berry	Director
/s/ Odie C. Donald* Odie C. Donald	Director
/s/ David H. Hughes* David H. Hughes	Director
/s/ Charles A. Ledsinger, Jr. * Charles A. Ledsinger, Jr.	Director
/s/ William M. Lewis, Jr. * William M. Lewis, Jr.	Director
/s/ Andrew H. Madsen* Andrew H. Madsen	Director
/s/ Cornelius McGillicuddy, III* ** Cornelius McGillicuddy, III	Director
/s/ Michael D. Rose* Michael D. Rose	Director
/s/ Maria A. Sastre* Maria A. Sastre	Director
/s/ Jack A. Smith* Jack A. Smith	Director
/s/ Rita P. Wilson* Rita P. Wilson	Director

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*By:	/s/ Paula J. Shives
	Paula J. Shives, Attorney-In-Fact
	July 17, 2008

^** 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.

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EXHIBIT INDEX

Exhibit Number	Title
2	Agreement and Plan of Merger, dated as of August 16, 2007, among us, Surf & Turf Merger Corp. and RARE Hospitality International, Inc. (incorporated herein by reference to Exhibit 2.01 to our Current Report on Form 8-K filed August 17, 2007).
3(a)	Articles of Incorporation as amended May 26, 2005 (incorporated by reference to Exhibit 3(a) to our Annual Report on Form 10-K for the fiscal year ended May 29, 2005).
3(b)	Bylaws as amended June 14, 2007 (incorporated by reference to Exhibit 3(ii) to our Current Report on Form 8-K filed June 19, 2007).
4(a)	Rights Agreement dated as of May 16, 2005, by and between us and Wachovia Bank, National Association, as Rights Agent (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed May 16, 2005).
4(b)	Amendment to Rights Agreement dated as of June 2, 2006, by and between us, Wachovia Bank, National Association and Wells Fargo Bank, National Association, as successor Rights Agent (incorporated by reference to Exhibit 4 to our Current Report on Form 8-K filed on June 5, 2006).
4(c)	Indenture dated as of January 1, 1996, between us and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association) (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-3 (Commission File No. 333-146582) filed October 9, 2007).
* 10(a)	Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995, as amended March 19, 2003 (incorporated herein by reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the quarter ended February 23, 2003).
* 10(b)	Darden Restaurants, Inc. FlexComp Plan as amended December 4, 2003 (incorporated herein by reference to Exhibit 10(b) to our Annual Report on Form 10-K for the year ended May 28, 2006).
* 10(c)	Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to our Annual Report on Form 10-K for the year ended May 29, 2005).
* 10(d)	Darden Restaurants, Inc. Stock Plan for Directors, as amended June 19, 2003 (incorporated by reference to Exhibit 10(f) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).
* 10(e)	Darden Restaurants, Inc. Compensation Plan for Non-Employee Directors, as amended March 19, 2003 (incorporated herein by reference to Exhibit 10(d) to our Quarterly Report on Form 10-Q for the quarter ended February 23, 2003).
* 10(f)	Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended June 19, 2003 (incorporated by reference to Exhibit 10(h) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).
* 10(g)	Benefits Trust Agreement dated as of October 3, 1995, between us and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association) (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(h)	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(i)	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(j)	Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000, as amended June 19, 2003 (incorporated by reference to Exhibit 10(l) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).
* 10(k)	Darden Restaurants, Inc. 2002 Stock Incentive Plan, as amended September 15, 2006 (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed September 19, 2006).
10(l)	Credit Agreement, dated as of September 20, 2007, 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 September 24, 2007).
*10(m)	Darden Restaurants, Inc. Director Compensation Program, effective as of October 1, 2005, as amended December 14, 2007 (incorporated herein by reference to Exhibit 10 to our Quarterly Report on Form 10-Q filed January 4, 2008).
*10(n)	Form of Non-Qualified Stock Option Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(a) to our Current Report on Form 8-K filed June 20, 2006).
*10(o)	Form of Restricted Stock Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(b) to our Current Report on Form 8-K filed June 20, 2006).
*10(p)	Form of Restricted Stock Units Award Agreement (U.S.) under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(c) to our Current Report on Form 8-K filed June 20, 2006).
*10(q)	Form of Performance Stock Units Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(r) to our Annual Report on Form 10-K for fiscal year ended May 27, 2007 filed July 19, 2007).
*10(r)	Employment Agreement dated April 28, 2003 between RARE Hospitality International, Inc. and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit 10.2 of the RARE Hospitality International, Inc. quarterly report on Form 10-Q (Commission File No. 000-19924) for the fiscal quarter ended June 29, 2003).
*10(s)	First Amendment of Employment Agreement dated October 27, 2004 between RARE Hospitality International, Inc. and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit 10.2 of the RARE Hospitality International, Inc. quarterly report on Form 10-Q (Commission File No. 000-19924) for the fiscal quarter ended September 26, 2004).
*10(t)	Second Amendment of Employment Agreement, dated October 27, 2005 between RARE Hospitality International, Inc. and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit 10.2 of the RARE Hospitality International, Inc. quarterly report on Form 10-Q (Commission File No. 000-19924) for the fiscal quarter ended September 25, 2005).

*10(u)	Third Amendment of Employment Agreement, dated October 27, 2006 between RARE Hospitality International, Inc. and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit 10.2 of the RARE Hospitality International, Inc. quarterly report on Form 10-Q (Commission File No. 000-19924) for the fiscal quarter ended October 1, 2006).
*10(v)	Fourth Amendment of Employment Agreement, dated December 15, 2006 between RARE Hospitality International, Inc. and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit 10(24) of the RARE Hospitality International, Inc. Annual Report filed on Form 10-K (Commission File No. 000-19924) for fiscal year ended December 31, 2006).
*10(w)	Letter Agreement, dated August 16, 2007, between us and Eugene I. Lee, Jr. (incorporated herein by reference from Exhibit (e)(22) of the RARE Hospitality International, Inc. Schedule 14D-9 (Commission File No. 000-19924) filed August 31, 2007).
*10(x)	RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan, as amended (incorporated herein by reference to Exhibit 10(a) to our Current Report on Form 8-K filed June 24, 2008).
*10(y)	Form of Non-Qualified Stock Option Award Agreement under the RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan, as amended (incorporated herein by reference to Exhibit 10(b) to our Current Report on Form 8-K filed June 24, 2008).
*10(z)	Form of Restricted Stock Award Agreement under the RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan, as amended (incorporated herein by reference to Exhibit 10(c) to our Current Report on Form 8-K filed June 24, 2008).
12	Computation of Ratio of Consolidated Earnings to Fixed Charges.
13	Portions of 2008 Annual Report to Shareholders.
21	Subsidiaries of Darden Restaurants, Inc.
23	Consent of Independent Registered Public Accounting Firm.
24	Powers of Attorney.
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.

* Items marked with an asterisk are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15 of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K.

EX-12

EXHIBIT 12

DARDEN RESTAURANTS, INC.

COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES

(Dollar Amounts in Millions)

	Fiscal Year Ended
	May 25, 2008			May 27, 2007			May 28, 2006			May 29, 2005			May 30, 2004
Consolidated Earnings from Continuing Operations before Income Taxes	$	514.7		$	530.8		$	508.1		$	441.6		$	358.7
Plus Fixed Charges:
Gross Interest Expense		91.9			43.6			48.9			47.7			47.7
40% of Restaurant and Equipment Minimum Rent Expense		35.2			26.0			24.4			23.2			21.8
Total Fixed Charges	$	127.1		$	69.6		$	73.3		$	70.9		$	69.5
Less Capitalized Interest		(4.9	)		(2.9	)		(1.9	)		(1.6	)		(2.2	)
Consolidated Earnings from Continuing Operations before Income Taxes Available to Cover Fixed Charges	$	636.9		$	597.5		$	579.5		$	510.9		$	426.0
Ratio of Consolidated Earnings from Continuing Operations to Fixed Charges		5.01			8.58			7.91			7.21			6.13

EX-13

EXHIBIT 13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis below for Darden Restaurants, Inc. (Darden, the Company, we, us or our) should be read in conjunction with our consolidated financial statements and related financial statement notes found elsewhere in this report.

We operate on a 52/53 week fiscal year, which ends on the last Sunday in May. Fiscal 2008, 2007 and 2006 each consisted of 52 weeks of operation.

OVERVIEW OF OPERATIONS

Our business operates in the full-service dining segment of the restaurant industry, primarily in the United States. At May 25, 2008, we operated 1,702 Red Lobster^®, Olive Garden^®, LongHorn Steakhouse^®, The Capital Grille^®, Bahama Breeze^®, Seasons 52^®, Hemenway’s Seafood Grille & Oyster Bar^® and The Old Grist Mill Tavern^® restaurants in the United States and Canada. Through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except three. Those three restaurants are located in Central Florida and are owned by joint ventures managed by us. The joint ventures pay management fees to us, and we control the joint ventures’ use of our service marks. None of our restaurants in the United States or Canada are franchised. As of May 25, 2008, we franchised five LongHorn Steakhouse restaurants in Puerto Rico to an unaffiliated franchisee, and 27 Red Lobster restaurants in Japan to an unaffiliated Japanese corporation, under area development and franchise agreements.

On August 16, 2007, we announced that we had entered into an agreement to purchase the common stock of RARE Hospitality International, Inc. (RARE) through a tender offer for $38.15 per share in cash, to be followed by a merger in which the remaining RARE shareholders would each receive $38.15 per share in cash, or $1.27 billion in total purchase price. Additionally, as a result of the acquisition, we repaid RARE’s 2.5 percent convertible notes for approximately $134.8 million, including $9.8 million related to a conversion premium. RARE owned two principal restaurant concepts, LongHorn Steakhouse and The Capital Grille, of which 288 and 29 locations, respectively, were in operation as of the date of acquisition. The acquisition was completed on October 1, 2007 and the acquired operations are included in our consolidated financial statements since the date of acquisition.

On May 5, 2007, we announced the closure of 54 Smokey Bones and two Rocky River Grillhouse restaurants as well as our intention to offer for sale the remaining 73 operating Smokey Bones restaurants. Sales declines at Smokey Bones led us to reevaluate our new restaurant opening strategy and test a new direction for the business. In fiscal 2007, we opened a new repositioned Smokey Bones restaurant named Rocky River Grillhouse, and a second Rocky River Grillhouse from a converted Smokey Bones. However, the Smokey Bones concept business model was designed to be a nationally advertised brand, and since it was not on a path to achieving that vision, we concluded it was not a meaningful growth vehicle for the Company. As a result of these actions, we recognized $229.5 million and $13.7 million of long-lived asset impairment charges and closing costs, respectively, during the fourth quarter of fiscal 2007. On November 30, 2007, we entered into a definitive agreement to sell the 73 operating Smokey Bones restaurants to Barbeque Integrated, Inc. (BII), an affiliate of Sun Capital Partners, Inc., a worldwide private investment firm, for $82.0 million, net of selling costs of approximately $1.8 million. On December 31, 2007, we closed with BII on the sale of 62 of the restaurants, and as of February 24, 2008, we had closed on the sale of an additional ten restaurants for a total of 72 restaurants. The sale of the remaining restaurant closed on June 13, 2008. As of May 25, 2008, we had received $81.5 million in net cash proceeds related to the sale and have recognized a gain on the sale of $18.0 million, which is included in earnings from discontinued operations for fiscal 2008. Additionally, on April 28, 2007, we closed nine under-performing Bahama Breeze restaurants. We have classified the results of operations, gains and losses on disposition, impairment charges and closing costs of these Smokey Bones and Rocky River Grillhouse restaurants and the nine closed Bahama Breeze restaurants as discontinued operations in our consolidated statements of earnings and cash flows for all periods presented.

Our sales from continuing operations were $6.63 billion in fiscal 2008 compared to $5.57 billion in fiscal 2007. The 19.0 percent increase was primarily driven by the acquisition of RARE, the addition of 39 net new Olive Gardens in fiscal 2008 and a same-restaurant sales increase at Olive Garden. Olive Garden had same-restaurant sales increases in each fiscal quarter, bringing its string of consecutive quarters with same-restaurant sales growth to 55. Net earnings from continuing operations for fiscal 2008 were $369.5 million ($2.55 per diluted share) compared with net earnings from continuing operations for fiscal 2007 of $377.1 million ($2.53 per diluted share). Net earnings from

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continuing operations for fiscal 2008 decreased 2.0 percent and diluted net earnings per share from continuing operations increased 0.8 percent compared with fiscal 2007. The decrease in net earnings from continuing operations was primarily due to integration costs and purchase accounting adjustments related to the RARE acquisition of approximately $44.8 million, on a pre-tax basis, in addition to increased food and beverage costs, wage rates and interest costs, which were only partially offset by the operating profit contribution of LongHorn Steakhouse and The Capital Grille, same-restaurant sales increases at Olive Garden as well as the operating profit contribution of 39 net new Olive Gardens. While net earnings from continuing operations declined versus prior year, diluted earnings per share increased slightly primarily due to a reduction in diluted weighted average shares outstanding.

Our net earnings (losses) from discontinued operations were $7.7 million, and ($175.7) million for fiscal 2008 and 2007, respectively. Our diluted net earnings (losses) per share from discontinued operations were $0.05 and ($1.18) for fiscal 2008 and 2007, respectively. The gain on the sale of Smokey Bones contributed approximately $0.08 to diluted net earnings per share from discontinued operations in fiscal 2008. When combined with results from continuing operations, our diluted net earnings per share were $2.60 and $1.35 for fiscal 2008 and 2007, respectively.

In fiscal 2009, we expect a net increase of approximately 75 to 80 restaurants. We expect combined U.S. same-restaurant sales growth in fiscal 2009 of approximately 2 percent for Red Lobster, Olive Garden and LongHorn Steakhouse. We expect total sales growth of between 14 percent and 15 percent compared to sales from continuing operations of $6.63 billion in fiscal 2008. This sales growth includes the impact of a 53^rd week in fiscal 2009, which we estimate will be 2 percentage points. Diluted net earnings per share growth from continuing operations is expected to be between 14 percent and 15 percent including the impact of the 53^rd week of approximately two percentage points. Transaction and integration-related costs and purchase accounting adjustments are expected to favorably impact diluted net earnings per share growth from fiscal 2008 to fiscal 2009 by approximately 5 percentage points.

In June 2008, we announced that we would pay a quarterly dividend of 20 cents per share on August 1, 2008. Previously, we had paid a quarterly dividend of 18 cents per share or 72 cents per share on an annual basis. Based on the 20 cent quarterly dividend declaration, our indicated annual dividend is 80 cents per share, an 11 percent increase.

Our mission is to be the best in full-service dining, now and for generations. We believe we can achieve this goal by continuing to build on our strategy to be a multi-brand restaurant growth company, which is grounded in:

• Competitively superior leadership;

• Strong brand building that reflects brand management and restaurant operating excellence; and

• Brand support excellence.

We seek to increase profits by leveraging our fixed and semi-fixed costs with sales from new restaurants and increased guest traffic and sales at existing restaurants. To evaluate our operations and assess our financial performance, we monitor a number of operating measures, with a special focus on two key factors:

• Same-restaurant sales – which is a year-over-year comparison of each period’s sales volumes for restaurants open at least 16 months, including recently acquired restaurants, absent consideration of when the restaurants were acquired; and

• Restaurant earnings – which is restaurant-level profitability (restaurant sales, less restaurant-level cost of sales, marketing and depreciation).

Increasing same-restaurant sales can improve restaurant earnings because these incremental sales provide better leverage of our fixed and semi-fixed restaurant-level costs. A restaurant concept can generate same-restaurant sales increases through increases in guest traffic, increases in the average guest check, or a combination of the two. The average guest check can be impacted by menu price changes and by the mix of menu items sold. For each restaurant concept, we gather daily sales data and regularly analyze the guest traffic counts and the mix of menu items sold to aid in developing menu pricing, product offerings and promotional strategies. We view same-restaurant guest counts as a measure of the long-term health of a restaurant concept, while increases in average check and menu mix may contribute more significantly to near-term profitability. We focus on balancing our pricing and product offerings with other initiatives to produce sustainable same-restaurant sales growth.

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We compute same-restaurant sales using restaurants open at least 16 months because new restaurants experience a period of time before sales levels normalize. Sales at newly opened restaurants generally do not make a significant contribution to profitability in their initial months of operation due to operating inefficiencies. Our sales and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocation and remodeling of existing restaurants. Pre-opening expenses each period reflect the costs associated with opening new restaurants in current and future periods.

There are significant risks and challenges that could impact our operations and ability to increase sales and earnings. The full-service dining restaurant industry is intensely competitive and sensitive to economic cycles and other business factors, including changes in consumer tastes and dietary habits. Other risks and uncertainties are discussed in Forward-Looking Statements found elsewhere in this report.

RESULTS OF OPERATIONS FOR FISCAL 2008, 2007 AND 2006

The following table sets forth selected operating data as a percentage of sales from continuing operations for the 52-week periods ended May 25, 2008, May 27, 2007 and May 28, 2006. This information is derived from the consolidated statements of earnings, found elsewhere in this report. Additionally, this information and the following analysis have been presented with the results of operations, gains and losses on disposition, impairment charges and closing costs for the Smokey Bones and Rocky River Grillhouse restaurants and the nine closed Bahama Breeze restaurants classified as discontinued operations for all periods presented. The results of operations of the LongHorn Steakhouse, The Capital Grille, Hemenway’s Seafood Grille & Oyster Bar and The Old Grist Mill Tavern restaurants have been included for the period subsequent to the date of acquisition.

	Fiscal Years
	2008		2007		2006
Sales	100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of sales:
Food and beverage	30.1		29.0		29.3
Restaurant labor	32.1		32.5		32.2
Restaurant expenses	15.3		15.0		15.1
Total cost of sales, excluding restaurant depreciation and amortization of 3.5%, 3.3% and 3.4%, respectively	77.5	%	76.5	%	76.6	%
Selling, general and administrative	9.7		9.7		9.4
Depreciation and amortization	3.7		3.6		3.7
Interest, net	1.3		0.7		0.8
Total costs and expenses	92.2	%	90.5	%	90.5	%
Earnings before income taxes	7.8		9.5		9.5
Income taxes	(2.2	)	(2.7	)	(2.9	)
Earnings from continuing operations	5.6		6.8		6.6
Earnings (losses) from discontinued operations, net of taxes	0.1		(3.2	)	(0.3	)
Net earnings	5.7	%	3.6	%	6.3	%

SALES

Sales from continuing operations were $6.63 billion in fiscal 2008, $5.57 billion in fiscal 2007 and $5.35 billion in fiscal 2006. The 19.0 percent increase in sales from continuing operations for fiscal 2008 was primarily due to the acquisition of RARE, a net increase of 39 Olive Garden restaurants, and U.S. same-restaurant sales increases at Olive Garden.

Olive Garden sales of $3.07 billion in fiscal 2008 were 10.0 percent above last year. Olive Garden opened 39 net new restaurants during fiscal 2008. Annual U.S. same-restaurant sales for Olive Garden increased 4.9 percent due to a 3.0 percent increase in average guest check and a 1.9 percent increase in same-restaurant guest counts. Average

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annual sales per restaurant for Olive Garden were $4.9 million in fiscal 2008 compared to $4.7 million in fiscal 2007. Olive Garden reported its 55^th consecutive quarter of U.S. same-restaurant sales growth at the end of fiscal 2008.

Red Lobster sales of $2.63 billion in fiscal 2008 were 1.0 percent above last year. Annual U.S. same-restaurant sales for Red Lobster increased 1.1 percent due to a 2.4 percent increase in average guest check, partially offset by a 1.3 percent decrease in guest counts. Average annual sales per restaurant for Red Lobster were $3.9 million in fiscal 2008 compared to $3.8 million in fiscal 2007.

LongHorn Steakhouse sales of $574.9 million in fiscal 2008 (for the period October 1, 2007 through May 25, 2008) were 6.9 percent above the comparable prior year period (which were included in RARE’s separately reported results of operations), driven by revenue from 24 net new restaurants, partially offset by a same-restaurant sales decrease. Annual same-restaurant sales for LongHorn Steakhouse decreased 1.9 percent due to a 4.2 percent decrease in same-restaurant guest counts, partially offset by a 2.3 percent increase in average guest check. Average annual sales per restaurant for LongHorn Steakhouse were $2.9 million in fiscal 2008.

The Capital Grille sales of $169.8 million in fiscal 2008 (for the period October 1, 2007 through May 25, 2008) were 11.6 percent above the comparable prior year period (which were included in RARE’s separately reported results of operations), driven by revenue from four net new restaurants, partially offset by a same-restaurant sales decrease. Annual same-restaurant sales for The Capital Grille decreased 1.1 percent due to a 4.4 percent decrease in same-restaurant guest counts, partially offset by a 3.3 percent increase in average guest check. Average annual sales per restaurant for The Capital Grille were $8.1 million in fiscal 2008.

Bahama Breeze sales from continuing operations of $135.2 million in fiscal 2008 were 1.9 percent below last year. Same-restaurant sales for Bahama Breeze decreased 1.8 percent for fiscal 2008. Average annual sales per restaurant for Bahama Breeze were $5.9 million in fiscal 2008.

The 4.0 percent increase in Company-wide sales for fiscal 2007 versus fiscal 2006 was primarily due to a net increase of 32 Company-owned restaurants, on a continuing operations basis, compared with fiscal 2006 and U.S. same-restaurant sales increases at Olive Garden, Red Lobster and Bahama Breeze. Olive Garden’s fiscal 2007 sales of $2.79 billion were 6.6 percent above fiscal 2006. U.S. same-restaurant sales for Olive Garden increased 2.7 percent in fiscal 2007 due to a 2.0 percent increase in average guest check and a 0.7 percent increase in same-restaurant guest counts. Average annual sales per restaurant for Olive Garden were $4.7 million in fiscal 2007 compared to $4.6 million in fiscal 2006. Red Lobster’s sales of $2.60 billion in fiscal 2007 were 0.9 percent above fiscal 2006 sales. In fiscal 2007, its U.S. same-restaurant sales increased 0.2 percent due to a 2.7 percent increase in average check and a 2.5 percent decrease in same-restaurant guest counts. Average annual sales per restaurant for Red Lobster were $3.8 million in fiscal 2007 and 2006. Bahama Breeze fiscal 2007 sales from continuing operations of $137.9 million increased 0.9 percent from fiscal 2006. On a continuing operations basis, Bahama Breeze same-restaurant sales increased 0.9 percent in fiscal 2007 and average annual sales per restaurant for Bahama Breeze in fiscal 2007 were $6.0 million compared to $5.9 million in fiscal 2006.

COSTS AND EXPENSES

Total costs and expenses from continuing operations were $6.11 billion in fiscal 2008, $5.04 billion in fiscal 2007 and $4.85 billion in fiscal 2006. As a percent of sales, total costs and expenses from continuing operations in fiscal 2008 were 92.2 percent, an increase from 90.5 percent in both fiscal 2007 and fiscal 2006.

Food and beverage costs increased $380.1 million, or 23.5 percent, from $1.62 billion in fiscal 2007 to $2.00 billion in fiscal 2008. Food and beverage costs increased $46.1 million, or 2.9 percent, from $1.57 billion in fiscal 2006 to $1.62 billion in fiscal 2007. As a percent of sales, food and beverage costs increased from fiscal 2007 to fiscal 2008 primarily as a result of the acquisition of RARE, whose concepts have historically had higher food and beverage costs, as a percent of sales, compared to our consolidated average prior to the acquisition. As a percent of sales, food and beverage costs also increased as a result of an increase in food costs, such as dairy, wheat, non-perishables and seafood, partially offset by pricing increases. As a percent of sales, food and beverage costs decreased from fiscal 2006 to fiscal 2007 primarily as a result of favorable pricing partially offset by menu mix changes. During fiscal 2007 food and beverage costs, as a percent of sales, also decreased from fiscal 2006 as a result of the larger contribution from Olive Garden, which has historically had lower food and beverage costs, to our overall sales and operating results.

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Restaurant labor costs increased $316.5 million, or 17.5 percent, from $1.81 billion in fiscal 2007 to $2.12 billion in fiscal 2008. Restaurant labor costs increased $86.1 million, or 5.0 percent, from $1.72 billion in fiscal 2006 to $1.81 billion in fiscal 2007. As a percent of sales, restaurant labor costs decreased in fiscal 2008 primarily as a result of the acquisition of RARE, whose concepts have historically had lower restaurant labor costs, as a percent of sales, compared to our consolidated average prior to the acquisition, as well as sales growth leveraging. As a percent of sales, this decrease in restaurant labor costs was partially offset by an increase in wage rates, benefit costs and manager compensation. As a percent of sales, restaurant labor costs increased in fiscal 2007 from fiscal 2006 primarily as a result of an increase in wage rates and an increase in FICA taxes on higher reported tips, which was partially offset by the favorable impact of higher sales volumes. The increase in FICA tax expense on higher reported tips is fully offset at the consolidated net earnings from continuing operations level by a corresponding income tax credit, which reduces income tax expense.

Restaurant expenses (which include lease, property tax, credit card, utility, workers’ compensation, insurance, new restaurant pre-opening and other restaurant-level operating expenses) increased $183.3 million, or 22.0 percent, from $834.5 million in fiscal 2007 to $1.02 billion in fiscal 2008. Restaurant expenses increased $28.1 million, or 3.5 percent, from $806.4 million in fiscal 2006 to $834.5 million in fiscal 2007. As a percent of sales, restaurant expenses increased in fiscal 2008 as compared to fiscal 2007 primarily as a result of RARE’s higher restaurant expenses as a percentage of sales compared to our consolidated average prior to the acquisition and integration costs and purchase accounting adjustments related to the RARE acquisition, partially offset by increased sales growth leveraging. As a percent of sales, restaurant expenses decreased in fiscal 2007 as compared with fiscal 2006 as a result of the favorable impact of higher sales volumes and decreases in our insurance and workers’ compensation expenses.

Selling, general and administrative expenses increased $104.7 million, or 19.5 percent, from $537.0 million in fiscal 2007 to $641.7 million in fiscal 2008. Selling, general and administrative expenses increased $30.9 million, or 6.1 percent, from $506.1 million in fiscal 2006 to $537.0 million in fiscal 2007. As a percent of sales, selling, general and administrative expenses were consistent from fiscal 2007 to fiscal 2008 primarily as a result of transaction and integration-related costs and purchase accounting adjustments related to the RARE acquisition and increased legal costs, which were offset by increased sales growth leveraging. As a percent of sales, selling, general and administrative expenses increased in fiscal 2007 as compared with fiscal 2006 primarily as a result of the recognition of stock-based compensation expense due to the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment,” in fiscal 2007 and increased marketing expenses, partially offset by the favorable impact of higher sales volumes and a decrease in litigation related costs.

Depreciation and amortization expense increased $45.3 million, or 22.6 percent, from $200.4 million in fiscal 2007 to $245.7 million in fiscal 2008. Depreciation and amortization expense increased $3.4 million, or 1.7 percent, from $197.0 million in fiscal 2006 to $200.4 million in fiscal 2007. As a percent of sales, depreciation and amortization expense increased in fiscal 2008 as a result of new restaurant activity, including the acquisition of RARE, which was partially offset by increased sales growth leveraging. As a percent of sales, depreciation and amortization declined from fiscal 2006 to fiscal 2007 primarily as a result of the continued use of fully depreciated, well-maintained equipment and the favorable impact of higher sales volumes, which were only partially offset by new restaurant and remodel activities.

Net interest expense increased $45.6 million or 113.7 percent from $40.1 million in fiscal 2007 to $85.7 million in fiscal 2008. Net interest expense decreased $3.8 million, or 8.7 percent, from $43.9 million in fiscal 2006 to $40.1 million in fiscal 2007. As a percent of sales, net interest expense increased in fiscal 2008 compared to fiscal 2007 due mainly to an increase in average long-term debt balances, primarily as a result of the RARE acquisition. As a percent of sales, net interest expense decreased in fiscal 2007 compared with fiscal 2006, as a result of the favorable impact of higher sales volumes and lower average long-term debt balances in fiscal 2007.

INCOME TAXES

The effective income tax rates for fiscal 2008, 2007 and 2006 continuing operations were 28.2 percent, 29.0 percent and 30.8 percent, respectively. The decrease in our effective rate for fiscal 2008 is due primarily to a decrease in our effective state income tax rate due to the favorable resolution of prior year tax matters expensed in prior years, in addition to a decrease in our federal effective rate, related to an increase in FICA tax credits for employee reported tips. The rate decrease in fiscal 2007 was primarily due to an increase in FICA tax credits for employee-reported tips and a decrease in our federal effective income tax rate resulting from the favorable resolution of prior year tax matters expensed in prior years.

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NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

Net earnings from continuing operations for fiscal 2008 were $369.5 million ($2.55 per diluted share) compared with net earnings from continuing operations for fiscal 2007 of $377.1 million ($2.53 per diluted share) and net earnings from continuing operations for fiscal 2006 of $351.8 million ($2.24 per diluted share).

Net earnings from continuing operations for fiscal 2008 decreased 2.0 percent and diluted net earnings per share from continuing operations increased 0.8 percent compared with fiscal 2007. The decrease in net earnings from continuing operations was primarily due to transaction and integration-related costs and purchase accounting adjustments related to the RARE acquisition of approximately $44.8 million, on a pre-tax basis, in addition to increased food and beverage costs and interest costs, which were only partially offset by the operating profit contributions of LongHorn Steakhouse and The Capital Grille. While net earnings from continuing operations declined slightly, diluted net earnings per share from continuing operations increased slightly due to a reduction in the average diluted shares outstanding from fiscal 2007 to fiscal 2008, primarily as a result of the cumulative impact of our continuing repurchase of our common stock.

Fiscal 2007 net earnings from continuing operations increased 7.2 percent and diluted net earnings per share increased 13.0 percent compared with fiscal 2006. The increases in net earnings and diluted net earnings per share from continuing operations were primarily due to decreases in food and beverage costs, restaurant expenses, depreciation and amortization expenses and interest expenses as a percent of sales, which were only partially offset by increases in restaurant labor and selling, general and administrative expenses as a percent of sales. The increase in diluted net earnings per share from continuing operations was also due to a reduction in the average diluted shares outstanding from fiscal 2006 to fiscal 2007, primarily as a result of the cumulative impact of our continuing repurchase of our common stock.

EARNINGS (LOSSES) FROM DISCONTINUED OPERATIONS

On an after-tax basis, earnings from discontinued operations for fiscal 2008 were $7.7 million ($0.05 per diluted share) compared with losses from discontinued operation for fiscal 2007 of $175.7 million ($1.18 per diluted share) and losses from discontinued operations for fiscal 2006 of $13.6 million ($0.08 per diluted share). During fiscal 2008, we recorded an $18.0 million gain on disposal related to the sale of 72 operating Smokey Bones restaurants, as described in the Overview of Operations section. Losses from discontinued operations for fiscal 2007 increased $162.1 million compared to fiscal 2006, primarily due to asset impairment charges and closing costs of $236.4 million ($146.0 million after tax) and $13.7 million ($8.5 million after tax), respectively, primarily related to the decision to close or hold for sale all Smokey Bones and Rocky River Grillhouse restaurants and $12.7 million ($7.8 million after tax) and $2.7 million ($1.7 million, net of tax) of asset impairment charges and closing costs, respectively, related to the closure of nine Bahama Breeze restaurants in fiscal 2007.

SEASONALITY

Our sales volumes fluctuate seasonally. During fiscal 2008, 2007 and 2006 our average sales per restaurant were highest in the spring and winter, followed by the summer, and lowest in the fall. Holidays, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

IMPACT OF INFLATION

We attempt to minimize the annual effects of inflation through appropriate planning, operating practices and menu price increases. We do not believe inflation had a significant overall effect on our annual results of operations during fiscal 2007 and 2006. However, we experienced higher than normal inflationary costs in fiscal 2008 and were able to reduce the annual impact utilizing these strategies.

CRITICAL ACCOUNTING POLICIES

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

6

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 expenses during the reporting period. Actual results could differ from those estimates.

Critical accounting policies are those we believe are both most important to the portrayal of our financial condition and operating results and require our 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. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Land, Buildings and Equipment

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. Leasehold improvements, which are reflected on our consolidated balance sheets as a component of buildings, are amortized over the lesser of the expected lease term, including cancelable option periods, or the estimated useful lives of the related assets using the straight-line method. Equipment is depreciated over estimated useful lives ranging from two to 20 years, also using the straight-line method.

Our accounting policies regarding land, buildings and equipment, including leasehold improvements, include our judgments regarding the estimated useful lives of these assets, the residual values to which the assets are depreciated or amortized, the determination of what constitutes expected lease term 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 reported depreciation and amortization expense if different assumptions were used. As discussed further below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized. As discussed further below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized, or as our expectations of estimated future cash flows change.

Leases

We are obligated under various lease agreements for certain restaurants. For operating leases, we recognize rent expense on a straight-line basis over the expected lease term, including option periods as described below. Capital leases are recorded as an asset and an obligation at an amount equal to the present value of the minimum lease payments during the lease term.

Within the provisions of certain of our leases, there are rent holidays and/or escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term, which includes option periods we are reasonably assured to exercise because failure to exercise such options would result in an economic penalty to the Company. The lease term commences on the date when we have the right to control the use of the leased property, which is typically before rent payments are due under the terms of the lease. The leasehold improvements and property held under capital leases for each restaurant facility are amortized on the straight-line method over the shorter of the estimated life of the asset or the same expected lease term used for lease accounting purposes. Many of our leases have renewal periods totaling five to 20 years, exercisable at our option, and require payment of property taxes, insurance and maintenance costs in addition to the rent payments. The consolidated financial statements reflect the same lease term for amortizing leasehold improvements as we use to determine capital versus operating lease classifications and in calculating straight-line rent expense for each restaurant. Percentage rent expense is generally based upon sales levels and is accrued at the point in time we determine that it is probable that such sales levels will be achieved.

Our judgments related to the probable term for each restaurant affect the classification and accounting for leases as capital versus operating, the rent holidays and escalation in payments that are included in the calculation of straight-line rent and the term over which leasehold improvements for each restaurant facility are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

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Impairment of Long-Lived Assets

Land, buildings and equipment and certain other assets, including capitalized software costs and liquor licenses, 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 undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. If these assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined by appraisals or sales prices of comparable assets. 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. Restaurant sites and certain other assets to be disposed of are included in assets held for sale when certain criteria are met. These criteria include the requirement that the likelihood of disposing of these assets within one year is probable. For assets that meet the held for sale criteria, we separately evaluate whether those assets also meet the requirements to be reported as discontinued operations. Principally, if we discontinue cash flows and no longer have any significant continuing involvement with respect to the operations of the assets, we classify the assets and related results of operations as discontinued. We consider guest transfer (an increase in guests at another location as a result of the closure of a location) as continuing cash flows and evaluate the significance of expected guest transfer when evaluating a restaurant for discontinued operations reporting. To the extent we dispose of enough assets where classification between continuing operations and discontinued operations would be material to our consolidated financial statements, we utilize the reporting provisions for discontinued operations. Assets whose disposal is not probable within one year remain in land, buildings and equipment until their disposal is probable within one year.

The judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, changes in usage or operating performance, desirability of the restaurant sites and other factors, such as our ability to sell our assets held for sale. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, significant adverse changes in these factors could cause us to realize a material impairment charge. During fiscal 2008, we recognized impairment charges of $0.1 million ($0.1 million after tax), which is included in selling, general and administrative expenses on our consolidated statements of earnings. During fiscal 2007, we recognized impairment charges of $236.4 million ($146.0 million after tax), primarily related to the decision to close or hold for sale all Smokey Bones and Rocky River Grillhouse restaurants, and we recognized impairment charges of $12.7 million ($7.8 million after tax) related to the decision to permanently close nine Bahama Breeze restaurants. The impairment charges were based on a comparison of the net book value and the estimated fair value of the restaurants. These charges are included in losses from discontinued operations, net of tax on our consolidated statements of earnings. In fiscal 2007, we also recognized $2.4 million ($1.5 million after tax) of impairment charges, included in selling, general and administrative expenses on our consolidated statements of earnings, primarily related to the permanent closing of one Red Lobster and one Olive Garden. During fiscal 2006, we recognized impairment charges of $8.4 million ($5.2 million after tax), related to the closing of three Smokey Bones restaurants and the impairment of two other Smokey Bones restaurants based on an evaluation of expected cash flows. These charges are included in losses from discontinued operations, net of tax on our consolidated statements of earnings. During fiscal 2006, we also recorded charges of $1.3 million ($0.8 million after tax), included in selling, general and administrative expenses in our consolidated statements of earnings, primarily related to the closing of three Red Lobster and two Olive Garden restaurants.

Valuation and Recoverability of Goodwill and Indefinite Lived Intangible Assets

Intangible assets with indefinite useful lives represented $974.9 million of our $4.73 billion in total assets as of May 25, 2008, comprised of $519.9 million and $455.0 million of goodwill and trademarks, respectively. We have identified LongHorn Steakhouse^® and The Capital Grille^® trademarks as indefinite lived intangible assets, in addition to our goodwill, after considering the expected use of the assets and the regulatory and economic environment within which they are being used. We review our goodwill and trademarks, which relate to the LongHorn Steakhouse and The Capital Grille restaurant concepts, annually, on the first day of our fourth fiscal quarter, for impairment, or more frequently if indicators of impairment exist. We continually assess whether any indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include: a significant decline in our expected future cash flows; a

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sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and/or slower growth rates, among others. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.

When required, we first test goodwill for impairment by comparing the fair value of the LongHorn Steakhouse and The Capital Grille concepts with their carrying amounts. If the fair value of the concepts exceeds the carrying amount of the concepts, goodwill is not deemed to be impaired, and no further testing would be necessary. If the carrying amount of these concepts were to exceed their fair value, we would perform a second test to measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we would determine the implied fair value of goodwill in the same manner as if these concepts were being acquired in a business combination. Specifically, we would allocate the fair value of each of these concepts to all of the assets and liabilities of each concept, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, we would record an impairment charge for the difference.

When required, we test trademarks for impairment by comparing the trademarks’ respective carrying values to estimates of fair value, determined based on an income valuation model using the relief from royalty method, which requires assumptions related to projected revenues from our annual long-range plan; assumed royalty rates that could be payable if we did not own the trademarks; and a discount rate. Our trademarks are tested separately as a single unit of accounting as prescribed by Emerging Issues Task Force (EITF) Issue No. 02-7, Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets.

The accounting estimates related to our goodwill and other indefinite lived intangible assets require us to make significant assumptions about fair values. Our assumptions regarding fair values require significant judgment about economic factors, industry factors and technology considerations, as well as our views regarding the prospects of our concepts. Changes in these judgments may have a significant effect on the estimated fair values.

Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we retain a significant portion of expected losses under our workers’ compensation, employee medical and general liability programs. However, we carry insurance for individual workers’ compensation and general liability claims that generally exceed $0.25 million. Accrued liabilities have been recorded based on our estimates of the anticipated ultimate costs to settle all claims, both reported and not yet reported.

Our accounting policies regarding these insurance programs include our judgments and independent actuarial assumptions about 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 reported expense under these programs.

Stock-Based Compensation

Beginning in fiscal 2007, we account for stock-based compensation in accordance with the fair value recognition provisions of SFAS No. 123R. We use the Black-Scholes option pricing model, which requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term), the volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures). From year to year, our determination of these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized in our consolidated statements of earnings during each period.

Income Taxes

We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes and the tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.

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Effective May 28, 2007 we adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” FIN 48 requires that a position taken or expected to be taken in a tax return be recognized (or derecognized) in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

We base our estimates on the best available information at the time that we prepare the provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, Canada, and most states in the U.S. that have an income tax. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001.

Included in the balance of unrecognized tax benefits at May 25, 2008 is $24.5 million related to tax positions for which it is reasonably possible that the total amounts could materially change during the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions. Of this amount, approximately $19.8 million relates to items temporary in nature which will have no impact on our effective income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities provide us with a significant source of liquidity, which we use to finance the purchases of land, buildings and equipment and to repurchase shares of our common stock. Since substantially all of our sales are for cash and cash equivalents and accounts payable are generally due in five to 30 days, we are able to carry current liabilities in excess of current assets. In addition to cash flows from operations, we use a combination of long-term and short-term borrowings to fund our capital needs.

We currently manage our business and our financial ratios to maintain an investment grade bond rating, which allows flexible access to financing at reasonable costs. Currently, our publicly issued long-term debt carries “Baa3” (Moody’s Investors Service), “BBB” (Standard & Poor’s) and “BBB” (Fitch) ratings. Our commercial paper has ratings of “P-3” (Moody’s Investors Service), “A-2” (Standard & Poor’s) and “F-2” (Fitch). These ratings are 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 our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our commercial paper program serves as our primary source of short-term financing. To support our commercial paper program, until September 20, 2007, we maintained a credit facility under a Credit Agreement dated August 16, 2005 (Prior Credit Agreement) with a consortium of banks under which we could borrow up to $500.0 million. As part of the Prior Credit Agreement, we could request issuance of up to $100.0 million in letters of credit, the outstanding amount of which reduced the net borrowing capacity under the Prior Credit Agreement. The Prior Credit Agreement allowed us to borrow at interest rates that varied based on a spread over (i) LIBOR or (ii) a base rate that was the higher of the prime rate or one-half of one percent above the federal funds rate, at our option. The interest rate spread over LIBOR was determined by our debt rating. We could also request that loans be made at interest rates offered by one or more of the banks, which may have varied from the LIBOR or base rate. The Prior Credit Agreement supported our commercial paper borrowing program and would have expired on August 15, 2010, but was terminated on September 20, 2007 in connection with the new credit arrangements described below. We were required to pay a facility fee of 10 basis points per annum on the average daily amount of loan commitments by the consortium. The amount of interest and annual facility fee were subject to change based on our maintenance of certain debt ratings and financial ratios, such as maximum debt to capital ratios. Advances under the Prior Credit Agreement were unsecured. At May 27, 2007, no borrowings under the Prior Credit Agreement were outstanding. However, as of May 27, 2007, there were $211.4 million of commercial paper and no letters of credit outstanding, which were backed by this facility.

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On September 20, 2007, to fund the RARE acquisition, we entered into (i) a $750.0 million revolving Credit Agreement dated as of September 20, 2007 (New Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders (Revolving Credit Lenders) and other agents party thereto, and (ii) a $1.15 billion 364-Day Credit Agreement dated as of September 20, 2007 (Interim Credit Agreement) with BOA, as administrative agent, and the lenders thereto. The Interim Credit Agreement became available to us upon the consummation of the RARE acquisition. The Interim Credit Agreement and the New Revolving Credit Agreement were used to fund the RARE acquisition. On October 11, 2007, we completed the issuance of $1.15 billion aggregate principal amount of long-term senior notes described below, the proceeds of which were used to fully repay the Interim Credit Agreement.

The New Revolving Credit Agreement is a senior unsecured debt obligation of the Company and contains customary representations, affirmative and negative covenants (including limitations on liens and subsidiary debt, and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. As of May 25, 2008, we were in compliance with all covenants under the New Revolving Credit Agreement.

The New Revolving Credit Agreement expires on September 20, 2012, and the proceeds may be used for commercial paper back-up, working capital and capital expenditures, the refinancing of certain indebtedness, the partial financing of the RARE acquisition as well as general corporate purposes. The New Revolving Credit Agreement also contains a sub-limit of $150.0 million for the issuance of letters of credit. The borrowings and letters of credit obtained under the New Revolving Credit Agreement may be denominated in U.S. Dollars, Euro, Sterling, Yen, Canadian Dollars and each other currency approved by the Revolving Credit Lenders. The Company may elect to increase the commitments under the New Revolving Credit Agreement by up to $250.0 million (to an aggregate amount of up to $1.00 billion), subject to the Company obtaining commitments from new and existing lenders for the additional amounts.

Loans under the New Revolving Credit Agreement bear interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid, or the base rate (which is defined as the higher of the BOA prime rate and the federal funds rate plus 0.500 percent). Assuming a “BBB” equivalent credit rating level, the applicable margin under the New Revolving Credit Agreement will be 0.350 percent. We may also request that loans under the New Revolving Credit Agreement be made at interest rates offered by one or more of the Revolving Credit Lenders, which may vary from the LIBOR or base rate, for up to $100.0 million of borrowings. The New Revolving Credit Agreement requires that we pay a facility fee on the total amount of such facility (ranging from 0.070 percent to 0.175 percent, based on our credit ratings) and, in the event that the outstanding amounts under the applicable New Revolving Credit Agreement exceeds 50 percent of such New Revolving Credit Agreement, a utilization fee on the total amount outstanding under such facility (ranging from 0.050 percent to 0.150 percent, based on our credit ratings). As of May 25, 2008, $130.0 million was outstanding under the New Revolving Credit Agreement. In addition, $48.4 million of commercial paper was outstanding as of May 25, 2008, which is backed by this facility.

On October 11, 2007, we issued $350.0 million of unsecured 5.625 percent senior notes due October 2012, $500.0 million of unsecured 6.200 percent senior notes due October 2017 and $300.0 million of unsecured 6.800 percent senior notes due October 2037 (collectively, the New Senior Notes) under a registration statement filed with the Securities and Exchange Commission (SEC) on October 9, 2007. Discount and issuance costs, which were $4.3 million and $11.7 million, respectively, are being amortized over the terms of the New Senior Notes using the straight-line method, the results of which approximate the effective interest method. The interest rate payable on each series of the New Senior Notes will be subject to adjustment from time to time if the debt rating assigned to such series of the New Senior Notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of May 25, 2008, no such adjustments to the interest rates had been made. We may redeem any series of the New Senior Notes at any time in whole or from time to time in part, at the principal amount plus a make-whole premium. If we experience a change of control triggering event, we may be required to purchase the New Senior Notes from the holders.

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During the second quarter of fiscal 2008, we entered into treasury-lock derivative instruments with $550.0 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate prior to the issuance of the New Senior Notes, as changes in the benchmark interest rate would cause variability in our forecasted interest payments. These instruments were all settled at the issuance of the New Senior Notes for a cumulative gain of $6.2 million. This amount was recorded in accumulated other comprehensive income (loss) and will be reclassified into earnings as an adjustment to interest expense as interest on the New Senior Notes or similar debt is incurred. A gain of $0.5 million was recognized in earnings during fiscal 2008 as an adjustment to interest expense.

During the fourth quarter of fiscal 2008, we also entered into treasury-lock derivative instruments with $100.0 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate associated with the expected issuance of the long-term debt to refinance our existing long-term debt due to mature in fiscal 2011, as changes in the benchmark interest rate will cause variability in our forecasted interest payments. The fair value of these outstanding treasury-lock derivative instruments was a net gain of $2.3 million at May 25, 2008 and is included, net of tax of $0.9 million, in accumulated other comprehensive income (loss).

On August 12, 2005, we issued $150.0 million of unsecured 4.875 percent senior notes due in August 2010 and $150.0 million of unsecured 6.000 percent senior notes due in August 2035 under our prior shelf registration statement on file with the SEC. The net proceeds of $295.4 million from the issuance of these senior notes were used to repay at maturity our $150.0 million of 8.375 percent senior notes on September 15, 2005 and our $150.0 million of 6.375 percent notes on February 1, 2006. In March 2007, we repaid, at maturity our $150.0 million unsecured 5.750 percent medium-term notes with cash from operations and short-term borrowings.

At May 25, 2008, our long-term debt consisted principally of:

• $150.0 million of unsecured 4.875 percent senior notes due in August 2010;

• $75.0 million of unsecured 7.450 percent medium-term notes due in April 2011;

• $350.0 million of unsecured 5.625 percent senior notes due in October 2012;

• $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;

• $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 $15.5 million commercial bank loan due in December 2018 that is used to support two loans from us to the Employee Stock Ownership Plan portion of the Darden Savings Plan.

Through our shelf registration statement on file with the SEC, we may issue an indeterminate amount of unsecured debt securities from time to time in one or more series, which may consist of notes, debentures or other evidences of indebtedness in one or more offerings.

A summary of our contractual obligations and commercial commitments at May 25, 2008, is as follows (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	$	178.4	$	178.4	$	—	$	—	$	—
Long-term debt (1)		2,966.3		106.5		431.8		518.4		1,909.6
Operating leases		697.8		115.3		198.0		146.0		238.5
Purchase obligations (2)		604.7		590.7		7.0		7.0		—
Capital lease obligations (3)		114.7		4.9		10.0		10.4		89.4
Benefit obligations (4)		281.1		24.5		41.2		49.0		166.4
Unrecognized income tax benefits (5)		88.5		28.0		55.5		5.0		—
Total contractual obligations	$	4,931.5	$	1,048.3	$	743.5	$	735.8	$	2,403.9

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	Amount of Commitment Expiration per Period
Other Commercial Commitments	Total Committed		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Standby letters of credit (6)	$	74.4	$	74.4	$	—	$	—	$	—
Guarantees (7)		5.8		1.3		1.9		0.9		1.7
Total commercial commitments	$	80.2	$	75.7	$	1.9	$	0.9	$	1.7

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 6 percent. Excludes issuance discount of $6.2 million.

2) Includes commitments for food and beverage items and supplies, capital projects and other miscellaneous commitments.

3) Includes total imputed interest of $53.9 million over the life of the capital lease obligations.

4) Includes expected payments associated with our defined benefit plans, postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2018.

5) Includes interest on unrecognized income tax benefits of $11.0 million.

6) Includes letters of credit for $64.4 million of workers’ compensation and general liabilities accrued in our consolidated financial statements, letters of credit for $3.2 million of lease payments included in the contractual operating lease obligation payments noted above and other letters of credit totaling $6.8 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 us having to perform in accordance with the terms of the guarantees.

Our fixed-charge coverage ratio, which measures the number of times each year that we earn enough to cover our fixed charges, amounted to 5.1 times and 8.6 times, on a continuing operations basis, for the fiscal years ended May 25, 2008 and May 27, 2007, respectively. Our adjusted debt to adjusted total capital ratio (which includes 6.25 times the total annual minimum rent of $102.0 million and $64.3 million for the fiscal years ended May 25, 2008 and May 27, 2007, respectively, as components of adjusted debt and adjusted total capital) was 64 percent and 50 percent at May 25, 2008 and May 27, 2007, respectively. We use the lease-debt equivalent in our adjusted debt to adjusted total capital ratio reported to shareholders, as we believe its inclusion better represents the optimal capital structure that we target from period to period.

Based on these ratios, we believe our financial condition is strong. The composition of our capital structure is shown in the following table.

(In millions, except ratios)	May 25, 2008			May 27, 2007
CAPITAL STRUCTURE
Short-term debt	$	178.4		$	211.4
Long-term debt		1,640.5			494.1
Capital lease obligations		60.8			—
Stockholders’ equity		1,409.1			1,094.5
Total capital	$	3,288.8		$	1,800.0
ADJUSTMENTS TO CAPITAL
Short-term debt	$	178.4		$	211.4
Long-term debt		1,640.5			494.1
Capital lease obligations		60.8			—
Lease-debt equivalent		637.5			397.0
Adjusted debt	$	2,517.2		$	1,102.5
Stockholders’ equity		1,409.1			1,094.5
Adjusted total capital	$	3,926.3		$	2,197.0
CAPITAL STRUCTURE RATIOS
Debt to total capital ratio		57	%		39	%
Adjusted debt to adjusted total capital ratio		64	%		50	%

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Net cash flows provided by operating activities from continuing operations were $766.8 million, $569.8 million and $699.1 million in fiscal 2008, 2007 and 2006, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $369.5 million, $377.1 million and $351.8 million in fiscal 2008, 2007 and 2006, respectively. Net cash flows provided by operating activities from continuing operations increased in fiscal 2008 primarily as a result of the timing of purchases of inventories and restaurant level services. Net cash flows provided by operating activities also reflect income tax payments of $119.7 million, $75.9 million and $126.3 million in fiscal 2008, 2007 and 2006, respectively. The lower tax payments in fiscal 2007, as compared with tax payments in fiscal 2008 and fiscal 2006, primarily relates to lower taxable income in fiscal 2007 caused by the closing of the 54 Smokey Bones, two Rocky River Grillhouse and nine Bahama Breeze restaurants.

Net cash flows used in investing activities from continuing operations were $1.62 billion, $289.5 million and $258.3 million in fiscal 2008, 2007 and 2006, respectively. Net cash flows used in investing activities included capital expenditures incurred principally to acquire RARE, build new restaurants, replace equipment and remodel existing restaurants. Capital expenditures related to continuing operations were $429.2 million in fiscal 2008, compared to $345.2 million in fiscal 2007 and $273.5 million in fiscal 2006. In addition to the acquisition of RARE, the increased expenditures in fiscal 2008 and 2007 resulted primarily from increased spending associated with building more new restaurants and replacement of restaurant equipment. During fiscal 2007, we also received $45.2 million in cash from the sale and leaseback of our current restaurant support center. We estimate that our fiscal 2009 capital expenditures will approximate $600 million, including approximately $85 million on our new restaurant support center. The overall cost of our new restaurant support center will be largely offset by various state and local tax credits and incentives and cash proceeds received from the sale of our current restaurant support center.

Net cash flows provided by (used in) financing activities from continuing operations were $805.5 million, ($322.9) million and ($392.9) million in fiscal 2008, 2007 and 2006, respectively. During fiscal 2008 we completed the offering of $1.15 billion of New Senior Notes, resulting in net proceeds of $1.13 billion, which were used to repay borrowings under the Interim Credit Agreement, which funded the acquisition of RARE. Proceeds received from the New Revolving Credit Agreement were used to partially fund the acquisition of RARE and to repay the $125.0 million 2.5 percent convertible notes assumed from RARE. Net cash flows used in financing activities also included our repurchase of 5.0 million shares of our common stock for $159.4 million in fiscal 2008 compared with 9.4 million shares of our common stock for $371.2 million in fiscal 2007 and 11.9 million shares for $434.2 million in fiscal 2006. As of May 25, 2008, our Board of Directors had authorized us to repurchase up to 162.4 million shares of our common stock and a total of 147.0 million shares had been repurchased under the authorization. The repurchased common stock is reflected as a reduction of stockholders’ equity. As of May 25, 2008, our unused authorization was 15.4 million shares. During fiscal 2006 we completed the offering of $300.0 million in senior notes, resulting in net proceeds of $294.7 million, which were used to repay, at maturity, $300.0 million in notes outstanding. We received proceeds primarily from the issuance of common stock upon the exercise of stock options of $66.8 million, $56.6 million and $61.8 million in fiscal 2008, 2007 and 2006, respectively. Net cash flows used in financing activities also included dividends paid to stockholders of $100.9 million, $65.7 million and $59.2 million in fiscal 2008, 2007 and 2006, respectively. The increase in dividend payments reflects the increase in our annual dividend rate from $0.40 per share in fiscal 2006, to $0.46 per share in fiscal 2007 and to $0.72 per share in fiscal 2008. In June 2008, the Board of Directors approved an increase in the quarterly dividend to $0.20 per share, which indicates an annual dividend of $0.80 per share in fiscal 2009.

Our defined benefit and other postretirement benefit costs and liabilities are determined using various actuarial assumptions and methodologies prescribed under the SFAS No. 87, “Employers’ Accounting for Pensions” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” We use certain assumptions including, but not limited to, the selection of a discount rate, expected long-term rate of return on plan assets and expected health care cost trend rates. We set the discount rate assumption annually for each plan at its valuation date to reflect the yield of high quality fixed-income debt instruments, with lives that approximate the maturity of the plan benefits. At May 25, 2008, our discount rate was 6.50 percent. The expected long-term rate of return on plan assets and health care cost trend rates are based upon several factors, including our historical assumptions compared with actual results, an analysis of current market conditions, asset allocations and the views of leading financial advisers and economists. Our assumed expected long-term rate of return on plan assets was 9.0 percent for each of the fiscal years reported. At May 25, 2008, the expected health care cost trend rates assumed for fiscal 2009 ranged from 8.0 percent to 9.0 percent, depending on the medical service category. The rates gradually decrease to 5.0 percent through fiscal 2013 and remain at that level thereafter. We made contributions of approximately $0.5 million, $0.5

14

million and $0.3 million in fiscal years 2008, 2007 and 2006, respectively, to our defined benefit pension plan to maintain its fully funded status as of each annual valuation date (the most recent of which was February 29, 2008).

The expected long-term rate of return on plan assets component of our net periodic benefit cost is calculated based on the market-related value of plan assets. Our target asset fund allocation is 35 percent U.S. equities, 30 percent high-quality, long-duration fixed-income securities, 15 percent international equities, 10 percent private equities and 10 percent real assets. We monitor our actual asset fund allocation to ensure that it approximates our target allocation and believe that our long-term asset fund allocation will continue to approximate our target allocation. Our historical ten-year rate of return on plan assets, calculated using the geometric method average of returns, is approximately 9.4 percent as of May 25, 2008.

We have recognized net actuarial losses, net of tax, as a component of accumulated other comprehensive income (loss) for the defined benefit plans and postretirement benefit plan as of May 25, 2008 of $12.3 million and $6.3 million, respectively. These net actuarial losses represent changes in the amount of the projected benefit obligation and plan assets resulting from differences in the assumptions used and actual experience. The amortization of the net actuarial loss component of our fiscal 2009 net periodic benefit cost for the defined benefit plans and postretirement benefit plan is expected to be approximately $0.4 million and $0.6 million, respectively.

We believe our defined benefit and postretirement benefit plan assumptions are appropriate based upon the factors discussed above. However, other assumptions could also be reasonably applied that could differ from the assumptions used. A quarter-percentage point change in the defined benefit plans’ discount rate and the expected long-term rate of return on plan assets would increase or decrease earnings before income taxes by $0.9 million and $0.4 million, respectively. A quarter-percentage point change in our postretirement benefit plan discount rate would increase or decrease earnings before income taxes by $0.1 million. A one-percentage point increase in the health care cost trend rates would increase the accumulated postretirement benefit obligation (APBO) by $4.4 million at May 25, 2008 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost by $0.5 million for fiscal 2008. A one-percentage point decrease in the health care cost trend rates would decrease the APBO by $3.9 million at May 25, 2008 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost by $0.3 million for fiscal 2008. These changes in assumptions would not significantly impact our funding requirements.

We are not aware of any trends or events that would materially affect our capital requirements or liquidity. We believe that our internal cash-generating capabilities, borrowings available under our shelf registration for unsecured debt securities and short-term commercial paper program should be sufficient to finance our capital expenditures, debt maturities, stock repurchase program and other operating activities through fiscal 2009.

OFF-BALANCE SHEET ARRANGEMENTS

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

FINANCIAL CONDITION

Our total current assets were $467.9 million at May 25, 2008, compared with $545.4 million at May 27, 2007. The decrease resulted primarily from a decrease in assets held for sale related primarily to the sale of Smokey Bones to BII, partially offset by increases in current liabilities related to the addition of RARE.

Our total current liabilities were $1.14 billion at May 25, 2008, compared with $1.07 billion at May 27, 2007. The increase in current liabilities resulted primarily from an increase in our level of operations due to the acquisition of RARE, partially offset by the effects of the adoption of FIN 48 and the related reclassification of reserves for uncertain tax positions to non-current liabilities, and a reduction in liabilities associated with assets held for sale related to the sale of Smokey Bones to BII.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of market risks, including fluctuations in interest rates, foreign currency exchange rates, compensation and commodity prices. To manage this exposure, we periodically enter into interest rate, foreign

15

currency exchange, equity forwards and commodity instruments for other than trading purposes (see Notes 1 and 11 of the Notes to Consolidated Financial Statements, included elsewhere in this report).

We use 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. At May 25, 2008, our potential losses in future net earnings resulting from changes in foreign currency exchange rate instruments, commodity instruments, equity forwards and floating rate debt interest rate exposures were approximately $12.5 million over a period of one year (including the impact of the interest rate swap agreements discussed in Note 11 of the Notes to Consolidated Financial Statements, included elsewhere in this report). The value at risk from an increase in the fair value of all of our long-term fixed rate debt, over a period of one year, was approximately $159.4 million. The fair value of our long-term fixed rate debt during fiscal 2008 averaged $1.22 billion, with a high of $1.69 billion and a low of $468.4 million. Our 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.

APPLICATION OF NEW ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measures.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. For financial assets and liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, which will require us to adopt these provisions in fiscal 2009. For nonfinancial assets and liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2008, which will require us to adopt these provisions in fiscal 2010. We do not believe the adoption of SFAS No. 157 will have a significant impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, which will require us to adopt these provisions in fiscal 2009. We do not believe the adoption of SFAS No. 159 will have a significant impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS No. 141R is effective for business combinations occurring in fiscal years beginning after December 15, 2008, which will require us to adopt these provisions for business combinations occurring in fiscal 2010 and thereafter. Early adoption of SFAS No. 141R is not permitted. We do not believe the adoption of SFAS No. 141R will have a significant impact on our consolidated financial statements; however, the application of this standard will significantly change how we account for future business combinations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company’s financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008, which will require us to adopt these provisions in fiscal 2009. Early adoption of SFAS No. 161 is permitted. We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the

16

two-class method. The two-class method is an earnings allocation method for computing earnings per share when an entity’s capital structure includes either two or more classes of common stock or common stock and participating securities. It determines earnings per share based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation rights of participating securities in any undistributed earnings. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, which will require us to adopt these provisions in fiscal 2010 and will require the recast of all previously reported earnings per share data. We are currently evaluating the impact FSP EITF 03-6-1 will have on our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Certain statements included in this report and other materials filed or to be filed by us with the SEC (as well as information included in oral or written statements made or to be made by us) may contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in 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. 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 those discussed below and in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended May 25, 2008:

• The intensely competitive nature of the restaurant industry, especially pricing, service, location, personnel and type and quality of food;

• Economic and business factors, both specific to the restaurant industry and generally, that are largely out of our control, including changes in consumer preferences, demographic trends, severe weather conditions including hurricanes, a protracted economic slowdown or worsening economy, energy prices, interest rates, industry-wide cost pressures and public safety conditions, including actual or threatened armed conflicts or terrorist attacks;

• The price and availability of food, ingredients and utilities, including the general risk of inflation;

• The impact of shortages or interruptions in the delivery of food and other supplies;

• 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;

• The loss of key personnel or difficulties recruiting and retaining qualified personnel;

• A material information technology interruption or security failure;

• Increased advertising and marketing costs;

• Higher-than-anticipated costs to open, close, relocate or remodel restaurants;

• Litigation by employees, consumers, suppliers, shareholders or others, regardless of whether the allegations made against us are valid or we are ultimately found liable;

• Unfavorable publicity relating to food safety or other concerns;

• A lack of suitable new restaurant locations or a decline in the quality of the locations of our current restaurants;

• Federal, state and local regulation of our business, including laws and regulations relating to our relationships with our employees, zoning, land use, environmental matters and liquor licenses;

• Growth objectives, including lower-than-expected sales and profitability of newly-opened restaurants, our expansion of newer concepts that have not yet proven their long-term viability, our ability to develop new concepts, risks associated with growth through acquisitions, and our ability to manage risks relating to the opening of new restaurants, including real estate development and construction activities, union activities, the issuance and renewal of licenses and permits, the availability and cost of funds to finance growth and our ability to hire and train qualified personnel;

• Our plans to expand newer concepts like Bahama Breeze and Seasons 52 that have not yet proven their long-term viability;

• Our ability to combine and integrate the business of RARE into our operations in a successful and timely manner and to achieve synergies following the completion of the acquisition, including the ultimate realization of goodwill;

• The impact of the substantial indebtedness we incurred in connection with the acquisition of RARE; and

• A failure of our internal controls over financial reporting.

Since it is not possible to foresee all such factors, risks and uncertainties, investors should not consider these factors to be a complete list of all risks or uncertainties.

17

REPORT OF MANAGEMENT’S 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 U.S. generally accepted accounting principles, using management’s best estimates and judgments where appropriate. The financial information throughout this report is consistent with our consolidated financial statements.

Management has established a system of internal controls that provides reasonable assurance that assets are adequately safeguarded and transactions are recorded accurately, in all material respects, in accordance with management’s authorization. We maintain a strong audit program that independently evaluates the adequacy and effectiveness of internal controls. Our internal controls provide for appropriate segregation of duties and responsibilities and there are documented policies regarding utilization of our 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 at least quarterly to determine that management, internal auditors and the independent registered public accounting firm are properly discharging their duties regarding internal control and financial reporting. The independent registered public accounting firm, internal auditors and employees have full and free access to the Audit Committee at any time.

KPMG LLP, an independent registered public accounting firm, is retained to audit our consolidated financial statements and the effectiveness of our internal control over financial reporting. Their reports follow.

/s/ Clarence Otis, Jr.

Clarence Otis, Jr.

Chairman of the Board and Chief Executive Officer

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 25, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management has concluded that, as of May 25, 2008, the Company’s internal control over financial reporting was effective based on these criteria.

The Company’s independent registered public accounting firm KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which follows.

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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders

Darden Restaurants, Inc.

We have audited Darden Restaurants, Inc.’s internal control over financial reporting as of May 25, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Darden Restaurants, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Darden Restaurants, Inc. maintained, in all material respects, effective internal control over financial reporting as of May 25, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Darden Restaurants, Inc. as of May 25, 2008 and May 27, 2007, and the related consolidated statements of earnings, changes in stockholders’ equity and accumulated other comprehensive income (loss), and cash flows for each of the years in the three-year period ended May 25 2008, and our report dated July 17, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Orlando, FL

July 17, 2008

Certified Public Accountants

19

Report of Independent Registered Public Accounting Firm

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 25, 2008 and May 27, 2007, and the related consolidated statements of earnings, changes in stockholders’ equity and accumulated other comprehensive income (loss), and cash flows for each of the years in the three-year period ended May 25, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 25, 2008 and May 27, 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended May 25, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for uncertainty in income taxes in 2008 by adopting FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, and changed its method of accounting for share-based compensation by adopting Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and accounting for defined benefit pension and other postretirement plans by adopting Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, in 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Darden Restaurants, Inc.’s internal control over financial reporting as of May 25, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 17, 2008 expressed an unqualified opinion on the effectiveness of Darden Restaurants, Inc.’s internal control over financial reporting.

/s/ KPMG LLP

Orlando, FL

July 17, 2008

Certified Public Accountants

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CONSOLIDATED STATEMENTS OF EARNINGS

	Fiscal Year Ended
(In millions, except per share data)	May 25, 2008			May 27, 2007			May 28, 2006
Sales	$	6,626.5		$	5,567.1		$	5,353.6
Costs and expenses:
Cost of sales:
Food and beverage		1,996.2			1,616.1			1,570.0
Restaurant labor		2,124.7			1,808.2			1,722.1
Restaurant expenses		1,017.8			834.5			806.4
Total cost of sales, excluding restaurant depreciation And amortization of $230.0, $186.4 and $181.1, respectively	$	5,138.7		$	4,258.8		$	4,098.5
Selling, general and administrative		641.7			537.0			506.1
Depreciation and amortization		245.7			200.4			197.0
Interest, net		85.7			40.1			43.9
Total costs and expenses	$	6,111.8		$	5,036.3		$	4,845.5
Earnings before income taxes		514.7			530.8			508.1
Income taxes		(145.2	)		(153.7	)		(156.3	)
Earnings from continuing operations	$	369.5		$	377.1		$	351.8
Earnings (losses) from discontinued operations, net of tax expense (benefit) of $3.0, ($112.9) and ($12.1), respectively		7.7			(175.7	)		(13.6	)
Net earnings	$	377.2		$	201.4		$	338.2
Basic net earnings per share:
Earnings from continuing operations	$	2.63		$	2.63		$	2.35
Earnings (losses) from discontinued operations		0.06			(1.23	)		(0.09	)
Net earnings	$	2.69		$	1.40		$	2.26
Diluted net earnings per share:
Earnings from continuing operations	$	2.55		$	2.53		$	2.24
Earnings (losses) from discontinued operations		0.05			(1.18	)		(0.08	)
Net earnings	$	2.60		$	1.35		$	2.16
Average number of common shares outstanding:
Basic		140.4			143.4			149.7
Diluted		145.1			148.8			156.9

See accompanying notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

(In millions)	May 25, 2008			May 27, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	43.2		$	30.2
Receivables, net		69.5			46.4
Inventories		216.7			209.6
Prepaid expenses and other current assets		46.7			33.5
Deferred income taxes		91.8			81.7
Assets held for sale		—			144.0
Total current assets	$	467.9		$	545.4
Land, buildings and equipment, net		3,066.0			2,184.4
Goodwill		519.9			—
Trademarks		455.0			—
Other assets		221.8			151.0
Total assets	$	4,730.6		$	2,880.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	245.1		$	178.0
Short-term debt		178.4			211.4
Accrued payroll		129.3			108.5
Accrued income taxes		2.4			75.9
Other accrued taxes		55.4			43.4
Unearned revenues		160.5			109.9
Other current liabilities		365.1			305.0
Liabilities associated with assets held for sale		—			42.3
Total current liabilities	$	1,136.2		$	1,074.4
Long-term debt, less current portion		1,634.3			491.6
Deferred income taxes		197.6			25.8
Deferred rent		139.0			127.1
Obligations under capital leases, net of current installments		59.9			—
Other liabilities		154.5			67.4
Total liabilities	$	3,321.5		$	1,786.3
Stockholders’ equity:
Common stock and surplus, no par value. Authorized 500.0 shares; issued 279.8 and 277.7 shares, respectively; outstanding 140.5 and 141.4 shares, respectively	$	2,074.9		$	1,904.3
Preferred stock, no par value. Authorized 25.0 shares; none issued and outstanding		—			—
Retained earnings		2,096.0			1,820.4
Treasury stock, 139.3 and 136.3 shares, at cost, respectively		(2,724.0	)		(2,576.5	)
Accumulated other comprehensive income (loss)		(20.7	)		(32.8	)
Unearned compensation		(17.0	)		(20.6	)
Officer notes receivable		(0.1	)		(0.3	)
Total stockholders’ equity	$	1,409.1		$	1,094.5
Total liabilities and stockholders’ equity	$	4,730.6		$	2,880.8

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(In millions, except per share data)	Common Stock And Surplus			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation			Officer Notes Receivable			Total Stockholders’ Equity
Balances at May 29, 2005	$	1,703.3		$	1,405.7		$	(1,784.8	)	$	(8.9	)	$	(41.6	)	$	(0.7	)	$	1,273.0
Comprehensive income:
Net earnings		—			338.2			—			—			—			—			338.2
Other comprehensive income (loss):
Foreign currency adjustment		—			—			—			3.9			—			—			3.9
Change in fair value of derivatives, net of tax of $0.4		—			—			—			(0.5	)		—			—			(0.5	)
Total comprehensive income																				341.6
Cash dividends declared ($0.40 per share)		—			(59.2	)		—			—			—			—			(59.2	)
Stock option exercises (3.9 shares)		49.3			—			6.3			—			—			—			55.6
Issuance of restricted stock (0.4 shares), net of forfeiture adjustments		13.5			—			—			—			(13.5	)		—			—
Stock-based compensation		—			—			—			—			7.4			—			7.4
ESOP note receivable repayments		—			—			—			—			3.5			—			3.5
Income tax benefits credited to equity		34.3			—			—			—			—			—			34.3
Purchases of common stock for treasury (11.9 shares)		—			—			(434.2	)		—			—			—			(434.2	)
Issuance of treasury stock under Employee Stock Purchase Plan and other plans (0.2 shares)		6.0			—			1.5			—			—			—			7.5
Repayment of officer notes		—			—			—			—			—			0.3			0.3
Balances at May 28, 2006	$	1,806.4		$	1,684.7		$	(2,211.2	)	$	(5.5	)	$	(44.2	)	$	(0.4	)	$	1,229.8
Comprehensive income:
Net earnings		—			201.4			—			—			—			—			201.4
Other comprehensive income (loss):
Foreign currency adjustment		—			—			—			0.5			—			—			0.5
Change in fair value of derivatives, net of tax of 1.9		—			—			—			4.0			—			—			4.0
Total comprehensive income																				205.9
Adjustment related to adoption of SFAS No. 158, net of tax of $19.6		—			—			—			(31.8	)		—			—			(31.8	)
Cash dividends declared ($0.46 per share)		—			(65.7	)		—			—			—			—			(65.7	)
Stock option exercises (3.6 shares)		46.1			—			4.8			—			—			—			50.9
Reclassification of unearned compensation (transition of SFAS 123(R))		(20.2	)		—			—			—			20.2			—			—
Stock-based compensation		26.2			—			—			—			—			—			26.2
ESOP note receivable repayments		—			—			—			—			3.3			—			3.3
Income tax benefits credited to equity		40.0			—			—			—			—			—			40.0
Purchases of common stock for treasury (9.4 shares)		—			—			(371.2	)		—			—			—			(371.2	)
Issuance of treasury stock under Employee Stock Purchase Plan and other plans (0.2 shares)		5.8			—			1.1			—			0.1			—			7.0
Repayment of officer notes		—			—			—			—			—			0.1			0.1
Balances at May 27, 2007	$	1,904.3		$	1,820.4		$	(2,576.5	)	$	(32.8	)	$	(20.6	)	$	(0.3	)	$	1,094.5
Comprehensive income:
Net earnings		—			377.2			—			—			—			—			377.2
Other comprehensive income (loss):
Foreign currency adjustment		—			—			—			3.3			—			—			3.3
Change in fair value of derivatives, net of tax of $2.6		—			—			—			0.7			—			—			0.7
Benefit plans, net of tax of $5.0		—			—			—			8.1			—			—			8.1
Total comprehensive income																				389.3
Adjustment related to adoption of FIN 48, net of tax of $0.4		—			(0.7	)		—			—			—			—			(0.7	)
Cash dividends declared ($0.72 per share)		—			(100.9	)		—			—			—			—			(100.9	)
Stock option exercises (3.3 shares)		53.6			—			7.9			—			—			—			61.5
Stock-based compensation		46.6			—			—			—			—			—			46.6
Stock-based awards included in cost of RARE acquisition		40.5			—			—			—			—			—			40.5
ESOP note receivable repayments		—			—			—			—			3.6			—			3.6
Income tax benefits credited to equity		23.5			—			—			—			—			—			23.5
Purchases of common stock for treasury (5.0 shares)		—			—			(159.4	)		—			—			—			(159.4	)
Issuance of treasury stock under Employee Stock Purchase Plan and other plans (0.2 shares)		6.4			—			4.0			—			—			—			10.4
Repayment of officer notes		—			—			—			—			—			0.2			0.2
Balances at May 25, 2008	$	2,074.9		$	2,096.0		$	(2,724.0	)	$	(20.7	)	$	(17.0	)	$	(0.1	)	$	1,409.1

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended
(In millions)	May 25, 2008			May 27, 2007			May 28, 2006
Cash flows - operating activities
Net earnings	$	377.2		$	201.4		$	338.2
(Earnings) losses from discontinued operations, net of tax benefit		(7.7	)		175.7			13.6
Adjustments to reconcile net earnings from continuing operations to cash flows:
Depreciation and amortization		245.7			200.4			197.0
Asset impairment charges, net		—			2.4			1.3
Amortization of loan costs		2.3			1.7			3.0
Stock-based compensation expense		48.9			31.6			12.5
Change in current assets and liabilities		53.7			(20.5	)		127.3
Contribution to postretirement plan		(1.2	)		(0.8	)		(0.4	)
Loss on disposal of land, buildings and equipment		2.2			3.1			2.4
Change in cash surrender value of trust-owned life insurance		4.6			(10.4	)		(6.0	)
Deferred income taxes		31.1			(27.1	)		(30.7	)
Change in deferred rent		12.8			2.5			4.8
Change in other liabilities		(17.0	)		3.3			2.5
Income tax benefits credited to equity		—			—			34.3
Income tax benefits from exercise of stock-based compensation credited to goodwill		8.0			—			—
Other, net		6.2			6.5			(0.7	)
Net cash provided by operating activities of continuing operations	$	766.8		$	569.8		$	699.1
Cash flows - investing activities
Sale of short-term investments		6.3			—			—
Purchases of land, buildings and equipment		(429.2	)		(345.2	)		(273.5	)
Proceeds from disposal of land, buildings and equipment		5.9			57.9			20.6
Cash used in business combination, net of cash acquired		(1,198.1	)		—			—
Proceeds from trust-owned life insurance		1.9			—			—
Increase in other assets		(2.5	)		(2.2	)		(5.4	)
Net cash used in investing activities of continuing operations	$	(1,615.7	)	$	(289.5	)	$	(258.3	)
Cash flows - financing activities
Proceeds from issuance of common stock		66.8			56.6			61.8
Income tax benefits credited to equity		23.5			40.0			—
Dividends paid		(100.9	)		(65.7	)		(59.2	)
Purchases of treasury stock		(159.4	)		(371.2	)		(434.2	)
ESOP note receivable repayments		3.6			3.3			3.6
Proceeds from Interim Credit Agreement		1,150.0			—			—
Repayment of Interim Credit Agreement		(1,150.0	)		—			—
(Payments) proceeds from issuance of short-term debt		(33.0	)		167.4			44.0
Proceeds from issuance of long-term debt		1,150.0			—			294.7
Payments of debt issuance costs		(16.0	)		—			—
Repayment of long-term debt		(3.6	)		(153.3	)		(303.6	)
Repayment of acquired convertible notes		(125.0	)		—			—
Principal payments on capital leases		(0.5	)		—			—
Net cash provided by (used in) financing activities of continuing operations	$	805.5		$	(322.9	)	$	(392.9	)
Cash flows - discontinued operations
Net cash (used in) provided by operating activities of discontinued operations		(32.6	)		36.6			17.9
Net cash provided by (used in) investing activities of discontinued operations		89.0			(6.1	)		(66.3	)
Net cash provided by (used in) discontinued operations	$	56.4		$	30.5		$	(48.4	)
Increase (decrease) in cash and cash equivalents		13.0			(12.1	)		(0.5	)
Cash and cash equivalents - beginning of year		30.2			42.3			42.8
Cash and cash equivalents - end of year	$	43.2		$	30.2		$	42.3
Cash flows from changes in current assets and liabilities
Receivables		(1.5	)		(5.9	)		(0.7	)
Inventories		9.5			(14.2	)		37.0
Prepaid expenses and other current assets		(2.6	)		(5.6	)		(2.1	)
Accounts payable		38.6			(23.6	)		29.4
Accrued payroll		—			(8.2	)		7.9
Accrued income taxes		(30.6	)		11.1			12.4
Other accrued taxes		2.1			0.7			2.5
Unearned revenues		2.8			11.8			11.5
Other current liabilities		35.4			13.4			29.4
Change in current assets and liabilities	$	53.7		$	(20.5	)	$	127.3

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Principles of Consolidation

The accompanying consolidated financial statements include the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden, the Company, we, us or our). We own and operate the Red Lobster^®, Olive Garden^®, LongHorn Steakhouse^®, The Capital Grille^®, Bahama Breeze^®, Seasons 52^®, Hemenway’s Seafood Grille & Oyster Bar^® and The Old Grist Mill Tavern^® restaurant concepts located in the United States and Canada. Through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except three. Those three restaurants are located in Central Florida and are owned by joint ventures managed by us. The joint ventures pay management fees to us, and we control the joint ventures’ use of our service marks. None of our restaurants in the United States or Canada are franchised. As of May 25, 2008, we franchised five LongHorn Steakhouse restaurants in Puerto Rico to an unaffiliated franchisee, and 27 Red Lobster restaurants in Japan to an unaffiliated Japanese corporation, under area development and franchise agreements. All significant inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation

On October 1, 2007, we completed the acquisition of RARE Hospitality International, Inc. (RARE) for $1.27 billion in total consideration. The acquisition principally included the LongHorn Steakhouse and The Capital Grille restaurant concepts, of which, 288 and 29 locations, respectively, were in operation as of the date of the acquisition. The results of operations, financial position and cash flows are included in our consolidated financial statements as of the date of acquisition as for all periods subsequent. See Note 2 – Acquisition of RARE Hospitality International, Inc. for additional information.

During fiscal 2007, we closed or were holding for sale all Smokey Bones and Rocky River Grillhouse restaurants and closed nine Bahama Breeze restaurants. Consistent with the discontinued operations reporting provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and Emerging Issues Task Force Issue No. 03-13, “Applying the Conditions in Paragraph 42 of SFAS No. 144 in Determining Whether to Report Discontinued Operations,” we determined that we had or would discontinue all significant cash flows and continuing involvement with respect to these Smokey Bones, Rocky River Grillhouse and Bahama Breeze operations noted above and consider these to be discontinued operations. Therefore, for fiscal 2008, 2007 and 2006, all gains and losses on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to these restaurants have been aggregated to a single caption entitled earnings (losses) from discontinued operations, net of tax on our consolidated statements of earnings for all periods presented. We have not allocated any general corporate overhead to amounts presented in discontinued operations, nor have we elected to allocate interest costs. See Note 3 – Discontinued Operations for additional information.

Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate to our continuing operations.

Fiscal Year

We operate on a 52/53 week fiscal year, which ends on the last Sunday in May. Fiscal 2008, 2007 and 2006 all consisted of 52 weeks of operation.

Use of Estimates

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 expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents include highly liquid investments such as U.S. treasury bills, taxable municipal bonds and money market funds that have an original 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.

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Accounts Receivable

Accounts receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. Provisions for doubtful accounts are recorded based on historical collection experience and the age of the receivables. Accounts receivable are written off when they are deemed uncollectible. See Note 4 – Receivables, Net for additional information.

Inventories

Inventories consist of food and beverages and are valued at the lower of weighted-average cost or market.

Land, Buildings and Equipment, Net

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. Leasehold improvements, which are reflected on our consolidated balance sheets as a component of buildings, are amortized over the lesser of the expected lease term, including cancelable option periods, or the estimated useful lives of the related assets using the straight-line method. Equipment is depreciated over estimated useful lives ranging from two to ten years also using the straight-line method. Depreciation and amortization expense from continuing operations associated with buildings and equipment amounted to $235.5 million, $192.8 million and $189.9 million, in fiscal 2008, 2007 and 2006, respectively. In fiscal 2008, 2007 and 2006, we had losses on disposal of land, buildings and equipment of $2.2 million, $3.1 million and $2.4 million, respectively, which were included in selling, general and administrative expenses. See Note 6 – Land, Buildings and Equipment, Net for additional information.

Capitalized Software Costs

Capitalized software, which is a component of other assets, 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 as of May 25, 2008 and May 27, 2007, amounted to $65.3 million and $62.6 million, respectively. Accumulated amortization as of May 25, 2008 and May 27, 2007, amounted to $37.9 million and $32.2 million, respectively. Amortization expense associated with capitalized software amounted to $7.6 million, $7.3 million and $6.6 million, in fiscal 2008, 2007 and 2006, respectively, and is included in depreciation and amortization in our accompanying consolidated statements of earnings.

Trust-Owned Life Insurance

In August 2001, we caused a trust that we previously had established to purchase life insurance policies covering certain of our 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 were purchased to offset a portion of our obligations under our non-qualified deferred compensation plan. The cash surrender value for each policy is included in other assets while changes in cash surrender values 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 as indefinite lived intangible assets and included in other assets. Annual liquor license renewal fees are expensed over the renewal term.

Goodwill and Other Intangibles

We account for goodwill and other intangibles in accordance with SFAS 142, “Goodwill and Other Intangible Assets,” which provides that goodwill and indefinite lived intangibles should not be amortized, but shall be tested for impairment annually or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Goodwill is tested for impairment as part of a two step process. The first step of the impairment test requires the identification of the reporting units, and comparison of the fair value of each of these reporting units to the respective carrying value. The fair value of the reporting units is determined based on valuation techniques using the best information that is available, such as discounted cash flow projections. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by comparing the implied

26

fair value of reporting unit goodwill with the carrying amount of that goodwill. SFAS No. 142 requires goodwill to be tested for impairment annually at the same time every year, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. Annual impairment tests will be performed in the fourth quarter of each year. At May 25, 2008, we had goodwill of $519.9 million.

We evaluate the useful lives of our other intangible assets, primarily intangible assets associated with the RARE acquisition, to determine if they are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

Our indefinite-lived intangible assets, primarily the value assigned to the trademarks acquired from RARE, also are tested for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We estimate the fair value of the trademarks based on an income valuation model using the relief from royalty method, which requires assumptions related to projected revenues from our annual long-range plan; assumed royalty rates that could be payable if we did not own the trademarks; and a discount rate. At May 25, 2008, we had trademarks of $455.0 million.

Definite-lived intangible assets include the value of acquired below-market leases of $23.8 million, net of accumulated amortization of $1.5 million, and other definite-lived intangibles of $6.7 million, net of accumulated amortization of $6.6 million, which are included in other assets in our consolidated balance sheet. Included in other liabilities in our consolidated balance sheet is $8.3 million of value related to above-market leases, net of accumulated amortization of $0.4 million. Definite-lived intangibles are amortized on a straight-line basis over estimated useful lives of one to 20 years. Amortization expense related to below-market leases and above-market leases for fiscal 2008 was $1.5 million and $0.4 million, respectively, and is included in restaurant expenses as a component of rent expense on our consolidated statements of earnings. Amortization of other amortizable intangibles was $2.6 million, $0.3 million and $0.5 million in fiscal 2008, 2007 and 2006, respectively, and is included in depreciation and amortization expenses in our consolidated statements of earnings. Amortization of other intangibles will be approximately $1.5 million in fiscal 2009 and $0.4 million in fiscal 2010 through 2013.

Impairment or Disposal of Long-Lived Assets

Land, buildings and equipment and certain other assets, including definite-lived intangible assets, capitalized software costs and liquor licenses, 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 undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. If such assets are determined to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined based on appraisals or sales prices of comparable assets. 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. Restaurant sites and certain other assets to be disposed of are included in assets held for disposal when certain criteria are met. These criteria include the requirement that the likelihood of disposing of these assets within one year is probable. Assets not meeting the “held for sale” criteria remain in land, buildings and equipment until their disposal is probable within one year.

We account for exit or disposal activities, including restaurant closures, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Such costs include the cost of disposing of the assets as well as other facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. Additionally, at the date we cease using a property under an operating lease, we record a liability for the net present value of any remaining lease obligations, net of estimated sublease income. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income are recorded in the period incurred. Upon disposal of the assets, primarily land, associated with a closed restaurant, any gain or loss is recorded in the same caption within our consolidated statements of earnings as the original impairment.

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Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we retain a significant portion of expected losses under our workers’ compensation, employee medical and general liability programs. However, we carry insurance for individual workers’ compensation and general liability claims that generally exceed $0.25 million. Accrued liabilities have been recorded based on our estimates of the anticipated ultimate costs to settle all claims, both reported and unreported.

Revenue Recognition

Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues represent our liability for gift cards that have been sold but not yet redeemed. We recognize revenue from our gift cards when the gift card is redeemed by the customer or the likelihood of redemption, based upon our historical redemption patterns, becomes remote. Revenues from the sales of franchises are recognized as income when substantially all of our material obligations under the franchise agreement have been performed. Continuing royalties, which are a percentage of net sales of franchised restaurants, are accrued as income when earned. Sales taxes collected from customers and remitted to governmental authorities are presented on a net basis within net sales on our consolidated statements of earnings.

Food and Beverage Costs

Food and beverage costs include inventory, warehousing and related purchasing and distribution costs. Vendor allowances received in connection with the purchase of a vendor’s products are recognized as a reduction of the related food and beverage costs as earned. Advance payments are made by the vendors based on estimates of volume to be purchased from the vendors and the terms of the agreement. As we make purchases from the vendors each period, we recognize the pro rata portion of allowances earned as a reduction of food and beverage costs for that period. Differences between estimated and actual purchases are settled in accordance with the terms of the agreements. Vendor agreements are generally for a period of one year or more and payments received are initially recorded as long-term liabilities. Amounts which are expected to be earned within one year are recorded as current liabilities.

Income Taxes

We provide 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 earnings in the period that includes the enactment date. Interest recognized in accordance with reserves for uncertain tax positions is included in interest, net in our consolidated statements of earnings. A corresponding liability for accrued interest is included as a component of other current liabilities in our consolidated balance sheets. Penalties, when incurred, are recognized in selling, general and administrative expense.

Effective May 28, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 requires that a position taken or expected to be taken in a tax return be recognized (or derecognized) in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Upon adoption, we recognized an additional liability of $1.1 million ($0.7 million after tax) for uncertain tax positions, including interest, which was accounted for as a cumulative decrease to the balance of beginning retained earnings. See Note 16 - Income Taxes for additional information.

Income tax benefits credited to equity relate to tax benefits associated with amounts that are deductible for income tax purposes but do not affect earnings. These benefits are principally generated from employee exercises of non-qualified stock options and vesting of employee restricted stock awards. See Note 16 – Income Taxes for additional information.

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Derivative Instruments and Hedging Activities

We use financial and commodities derivatives to manage interest rate, compensation and commodities pricing risks inherent in our business operations. Our use of derivative instruments is currently limited to interest rate hedges; equity forwards contracts and commodities futures and options contracts. These instruments are structured as hedges of forecasted transactions or the variability of cash flows to be paid related to a recognized asset or liability (cash flow hedges). We do not enter into derivative instruments for trading or speculative purposes, where changes in the cash flows of the derivative are not expected to offset changes in cash flows related to a forecasted transaction. However, we have entered into equity forwards to economically hedge changes in the fair value of employee investments in our non-qualified deferred compensation plan and we have not elected hedge accounting for these instruments. All derivatives are recognized on the balance sheet at fair value. For those derivative instruments for which we intend to elect hedge accounting, on the date the derivative contract is entered into, we document all relationships between hedging instruments and hedged items, as well as our 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. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

Changes in the fair value of derivatives that are highly effective, and are designated and qualify as cash flow hedges are recorded in other comprehensive income (loss) until earnings are affected by the variability in cash flows of the designated hedged item. Where applicable, we discontinue 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 not been elected, where there is ineffectiveness or where the originally forecasted cash flows are no longer probable of occurring are recognized immediately in earnings. Cash flows related to derivatives are included in operating activities. See Note 11 – Derivative Instruments and Hedging Activities for additional information.

Leases

For operating leases, we recognize rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise the options would result in an economic penalty to the Company. Differences between amounts paid and amounts expensed are recorded as deferred rent. Capital leases are recorded as an asset and an obligation at an amount equal to the present value of the minimum lease payments during the lease term. Within the provisions of certain of our leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term, which includes cancelable option periods where failure to exercise such options would result in an economic penalty to the Company. The lease term commences on the date when we have the right to control the use of the leased property, which is typically before rent payments are due under the terms of the lease. Many of our leases have renewal periods totaling five to 20 years, exercisable at our option and require payment of property taxes, insurance and maintenance costs in addition to the rent payments. The consolidated financial statements reflect the same lease term for amortizing leasehold improvements as we use to determine capital versus operating lease classifications and in calculating straight-line rent expense for each restaurant. Percentage rent expense is generally based on sales levels and is accrued at the point in time we determine that it is probable that such sales levels will be achieved.

Pre-Opening Expenses

Non-capital expenditures associated with opening new restaurants are expensed as incurred.

Advertising

Production costs of commercials are charged to operations in the fiscal period the advertising is first aired. The costs of programming and other advertising, promotion and marketing programs are charged to operations in the fiscal period incurred. Advertising expense, related to continuing operations, included in selling, general and administrative expenses, amounted to $257.8 million, $230.0 million and $223.0 million in fiscal 2008, 2007 and 2006, respectively.

Stock-Based Compensation

Effective May 29, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” which requires companies to recognize in the financial statements the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Previously, SFAS No. 123, “Accounting for

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Stock-Based Compensation,” encouraged, but did not require, that stock-based compensation be recognized as an expense in companies’ financial statements. Accordingly, we elected to account for our stock-based compensation plans under an intrinsic value method that required compensation expense to be recorded only if, on the date of grant, the current market price of our common stock exceeded the exercise price the employee must pay for the stock. Our practice is to grant stock options at the fair market value of our underlying stock on the date of grant. Accordingly, prior to the adoption of SFAS No. 123(R), no compensation expense had been recognized for stock options granted under any of our stock plans because the exercise price of all options granted was equal to the current market value of our stock on the grant date. Subsequent to the adoption of SFAS No. 123(R), during fiscal 2008 and fiscal 2007, we recognized $26.8 million ($16.7 million net of tax) and $17.1 million ($10.6 million net of tax), respectively, in incremental stock-based compensation expense related to stock options and benefits granted under our Employee Stock Purchase Plan, discussed below, which reduced our basic and diluted net earnings per share from continuing operations by $0.12 in fiscal 2008 and $0.08 in fiscal 2007.

Prior to the adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized stock-based compensation expense were reported as operating cash flows. Under SFAS No. 123(R), such excess tax benefits are reported as financing cash flows. Although total cash flows are not impacted and remain unchanged from what would have been reported under prior accounting standards, due to the adoption of SFAS No. 123(R) net cash flows provided by operating activities were reduced by $23.5 million and $40.0 million during fiscal 2008 and fiscal 2007, respectively, and net financing cash flows were increased by $23.5 million and $40.0 million during fiscal 2008 and fiscal 2007, respectively, due to the classification of these tax benefits as a financing activity as opposed to an operating activity.

We adopted SFAS No. 123(R) according to the modified prospective transition method and use the Black-Scholes option pricing model to estimate the fair value of awards. Under the modified prospective transition method, we recognize compensation expense on a straight-line basis over the remaining employee service period for new awards granted after the effective date of SFAS No. 123(R) and for unvested awards granted prior to the effective date of SFAS No. 123(R). In accordance with the modified prospective transition method, financial statements issued for periods prior to the adoption of SFAS No. 123(R) have not been restated.

Had we determined compensation expense for our stock options and benefits granted under our Employee Stock Purchase Plan for fiscal 2006 based on the fair value at the grant date as prescribed under SFAS No. 123, our earnings from continuing operations and net earnings from continuing operations per share, excluding pro-forma stock-based compensation expense from discontinued operations, would have been reduced to the pro forma amounts indicated below:

(in millions, except per share data)
Earnings from continuing operations	$	351.8
Add: Stock-based compensation expense included in reported net earnings, net of related tax effects		5.1
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(18.4	)
Pro forma	$	338.5
Basic net earnings per share from continuing operations
As reported	$	2.35
Pro forma	$	2.26
Diluted net earnings per share from continuing operations
As reported	$	2.24
Pro forma	$	2.16

To determine pro forma net earnings, reported net earnings have been adjusted for compensation expense associated with stock options granted that are expected to vest and benefits granted under our Employee Stock Purchase Plan. Total stock-based compensation expense also includes costs related to restricted stock and other forms of stock-based compensation granted to our employees that have always been required to be recognized in our financial statements. See Note 18—Stock-Based Compensation for further discussion. The preceding pro forma results were determined using the Black-Scholes option-pricing model. The weighted-average fair value of non-qualified stock

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options granted during fiscal 2008, 2007 and 2006 used in computing compensation expense in fiscal 2008 and 2007 and pro-forma compensation expense in fiscal 2006 was $14.05, $13.87 and $10.68, respectively. The dividend yield was calculated by dividing the current annualized dividend by the option exercise price. The expected volatility was determined using historical stock prices. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term approximating the expected life of each grant. The expected life was estimated based on the exercise history of previous grants, taking into consideration the remaining contractual period for outstanding awards. The weighted-average assumptions used in the Black-Scholes model to record stock-based compensation in fiscal 2008 and 2007 and to derive the pro forma results for fiscal 2006, disclosed above, were as follows:

	Stock Options Granted in Fiscal Year
	2008		2007		2006
Risk-free interest rate	4.63	%	5.08	%	3.91	%
Expected volatility of stock	32.6	%	34.5	%	30.0	%
Dividend yield	1.6	%	1.3	%	1.2	%
Expected option life	6.4 years		6.4 years		6.0 years

Net Earnings Per Share

Basic net earnings per share are computed by dividing net earnings by the weighted-average number of common shares outstanding for the reporting period. Diluted net earnings per share reflect 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, restricted stock, benefits granted under our Employee Stock Purchase Plan and performance stock units granted by us represent the only dilutive effect reflected in diluted weighted-average shares outstanding. These stock-based compensation instruments do not impact the numerator of the diluted net earnings per share computation.

The following table presents the computation of basic and diluted earnings per common share:

(in millions, except per share data)	Fiscal Year
	2008		2007			2006
Earnings from continuing operations	$	369.5	$	377.1		$	351.8
Earnings (loss) from discontinued operations		7.7		(175.7	)		(13.6	)
Net earnings	$	377.2	$	201.4		$	338.2
Average common shares outstanding – Basic		140.4		143.4			149.7
Effect of dilutive stock-based compensation		4.7		5.4			7.2
Average common shares outstanding – Diluted		145.1		148.8			156.9
Basic net earnings per share:
Earnings from continuing operations	$	2.63	$	2.63		$	2.35
Earnings (loss) from discontinued operations		0.06		(1.23	)		(0.09	)
Net earnings	$	2.69	$	1.40		$	2.26
Diluted net earnings per share:
Earnings from continuing operations	$	2.55	$	2.53		$	2.24
Earnings (loss) from discontinued operations		0.05		(1.18	)		(0.08	)
Net earnings	$	2.60	$	1.35		$	2.16

Options to purchase 3.2 million shares, 1.8 million shares and 0.1 million shares of common stock were excluded from the calculation of diluted net earnings per share for fiscal 2008, 2007 and 2006, respectively, because the effect would have been anti-dilutive.

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Comprehensive Income (Loss)

Comprehensive income (loss) includes net earnings and other comprehensive income (loss) items that are excluded from net earnings under U.S. generally accepted accounting principles. Other comprehensive income (loss) items include foreign currency translation adjustments, the effective unrealized portion of changes in the fair value of cash flow hedges and the amortization of unrecognized net actuarial gains and losses related to our pension and other postretirement plans. See Note 13—Stockholders’ Equity for additional information.

Foreign Currency

The Canadian dollar is the functional currency for our 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 (loss) in stockholders’ equity. Aggregate cumulative translation losses were $1.0 million and $4.3 million at May 25, 2008 and May 27, 2007, respectively. Gains and losses from foreign currency transactions were not significant for fiscal 2008, 2007 or 2006.

Segment Reporting

As of May 25, 2008, we operated the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Hemenway’s Seafood Grille & Oyster Bar and The Old Grist Mill Tavern restaurant concepts in North America as operating segments. The concepts operate principally in the U.S. within the full-service dining industry, providing similar products to similar customers. The concepts also possess similar economic characteristics, resulting in similar long-term expected financial performance characteristics. Revenues from external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of revenue. We believe we meet the criteria for aggregating our operating segments into a single reporting segment.

Application of New Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measures.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. For financial assets and liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, which will require us to adopt these provisions in fiscal 2009. For nonfinancial assets and liabilities, SFAS No. 157 is effective for fiscal years beginning after November 15, 2008, which will require us to adopt these provisions in fiscal 2010. We do not believe the adoption of SFAS No. 157 will have a significant impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, which will require us to adopt these provisions in fiscal 2009. We do not believe the adoption of SFAS No. 159 will have a significant impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS No. 141R is effective for business combinations occurring in fiscal years beginning after December 15, 2008, which will require us to adopt these provisions for business combinations occurring in fiscal 2010 and thereafter. Early adoption of SFAS No. 141R is not permitted. We do not believe the adoption of SFAS No. 141R will have a significant impact on our consolidated financial statements; however, the application of this standard will significantly change how we account for future business combinations.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company’s financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008, which will require us to adopt these provisions in fiscal 2009. Early adoption of SFAS No. 161 is permitted. We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation method for computing earnings per share when an entity’s capital structure includes either two or more classes of common stock or common stock and participating securities. It determines earnings per share based on dividends declared on common stock and participating securities (i.e., distributed earnings) and participation rights of participating securities in any undistributed earnings. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, which will require us to adopt these provisions in fiscal 2010 and will require the recast of all previously reported earnings per share data. We are currently evaluating the impact FSP EITF 03-6-1 will have on our consolidated financial statements.

NOTE 2 – ACQUISITION OF RARE HOSPITALITY INTERNATIONAL, INC.

On October 1, 2007, we completed the acquisition of all of the outstanding common stock of RARE for an aggregate purchase price, including fees, expenses, and the fair value of our vested stock options and restricted stock issued to RARE employees in exchange for their outstanding vested stock options and restricted stock, of $1.27 billion, which is summarized below (amounts in millions):

Payment to RARE shareholders in cash	$	1,191.6
Conversion of RARE stock-based awards		40.5
Direct acquisition costs		13.5
Restructuring and other employee costs		9.9
RARE debt conversion premium		9.8
Total	$	1,265.3

Additionally, as a result of the acquisition, we repaid RARE’s 2.5 percent convertible notes for $134.8 million, including $9.8 million related to the conversion premium, which was included in the purchase price. The acquired operations, which included 288 LongHorn Steakhouse restaurants, 29 The Capital Grille restaurants, one Hemenway’s Seafood Grille & Oyster Bar restaurant, and one The Old Grist Mill Tavern, as well as the rights associated with the four franchised LongHorn Steakhouse restaurants in Puerto Rico, are included in the results of operations of our consolidated financial statements from the date of acquisition and will continue to operate under their trademarked names.

Under the purchase method of accounting, the assets and liabilities of RARE were recorded at their respective fair values as of the date of the acquisition. We are in the process of confirming, through internal studies and third-party valuations, the fair value of these assets, including land, buildings and equipment, intangible assets, and certain liabilities. The fair values set forth below are based on preliminary valuations and, given the size of the acquisition, are subject to adjustment as additional information is obtained. Such additional information includes, but may not be limited to, the following: valuations and physical counts of land, buildings and equipment and plans relative to the disposition of certain assets and liabilities acquired. We expect to complete this process during the first quarter of fiscal 2009, which may result in adjustments to goodwill, in addition to the allocation of goodwill to the applicable reporting units.

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The following table summarizes the preliminary estimate of fair value assigned to the assets acquired and liabilities assumed and related deferred income taxes as of the date of acquisition, reflecting adjustments through May 25, 2008 (amounts in millions):

Current assets	$	87.7
Land, buildings and equipment		654.2
Goodwill (non-amortizable)		527.9
Trademarks (non-amortizable)		455.0
Other assets (including $12.6 of non-amortizable liquor licenses)		63.2
Total assets acquired	$	1,788.0
Current liabilities		114.9
Other liabilities		407.8
Total liabilities assumed	$	522.7
Net assets acquired	$	1,265.3

The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill. Of the $527.9 million recorded as goodwill, $11.1 is expected to be deductible as operating expenses for tax purposes. The acquisition of RARE is a major step in advancing our strategy of growing our portfolio of brands in the casual dining industry through internal development and acquisitions. The portion of the purchase price attributable to goodwill represents benefits expected as a result of the acquisition, including sales growth opportunities driven primarily by increased advertising effectiveness and cost synergies, driven primarily by supply chain and purchasing integration and consolidation of corporate and restaurant support infrastructure. During the period subsequent to the acquisition, $8.0 million of tax benefits related to the exercise of converted stock-based compensation was charged against goodwill related to the portion of the value of the awards that was included in the purchase price.

Trademarks, which primarily relate to LongHorn Steakhouse and The Capital Grille, 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 trademarks are not amortized but are reviewed annually for impairment or more frequently if indicators of impairment exist. A portion of the acquired lease portfolio represented favorable operating leases, compared with current market conditions, and a portion represented unfavorable operating leases, compared with current market conditions. The fair value of the favorable leases totaled $25.3 million, is recorded in other assets and, after considering renewal periods, has an estimated weighted average life of approximately 16 years. The fair value of the unfavorable leases totaled $8.7 million, is recorded in other liabilities and has an estimated weighted average life of approximately 19 years. The fair value of both the favorable and unfavorable leases is amortized to rent expense on the straight-line basis over the lives of the related leases.

As a result of the RARE acquisition, we accrued $4.7 million in employee termination benefits and $5.2 million in employee relocation benefits, both of which were included in the cost of the acquisition, and are expected to be paid out during fiscal 2008 and 2009.

The following is a reconciliation of accrued employee termination and employee relocation benefit costs from October 1, 2007 (date of acquisition) to May 25, 2008, which are included in other current liabilities in the accompanying consolidated balance sheets:

(in millions)	Balance at October 1, 2007		Adjustments			Payments			Balance at May 25, 2008
Employee terminations	$	4.7	$	—		$	(3.3	)	$	1.4
Employee relocations		6.1		(0.9	)		(2.8	)		2.4
Total	$	10.8	$	(0.9	)	$	(6.1	)	$	3.8

Included as part of the purchase price were $31.9 million and $8.6 million of fair value related to our stock options and restricted stock, respectively, issued to RARE employees in exchange for their outstanding RARE vested stock options and restricted stock.

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The following pro forma information assumes the RARE acquisition occurred as of the beginning of each period presented. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented.

(in millions, except per share data)	Fiscal Year Ended
	May 25, 2008		May 27, 2007
Sales	$	6,986.5	$	6,559.8
Earnings from continuing operations	$	384.4	$	420.3
Net earnings	$	389.6	$	237.5
Diluted net earnings per share from continuing operations	$	2.65	$	2.82
Diluted net earnings per share	$	2.68	$	1.60

NOTE 3 – DISCONTINUED OPERATIONS

On April 28, 2007, we closed nine under-performing Bahama Breeze restaurants to focus more on the profitable locations and position the concept for new unit growth. As a result of these closures, we recorded long-lived asset impairment charges of $12.7 million in fiscal 2007, as well as expenses of $1.3 million to accrue for ongoing contractual operating lease obligations, $0.6 million in restaurant-level closing costs, $0.5 million in employee termination benefits and $0.3 million in other costs.

On May 5, 2007, we announced the closure of 54 Smokey Bones and two Rocky River Grillhouse restaurants as well as our intention to offer for sale the remaining 73 operating Smokey Bones restaurants. During fiscal 2007, we recorded long-lived asset impairment charges of $236.4 million, $229.5 million of which was recorded during the fourth quarter as a result of these actions, as well as expenses of $4.9 million to accrue for ongoing contractual operating lease obligations, $3.9 million in other asset write-offs, $2.3 million in employee termination benefits, $1.3 million in restaurant-level closing costs, and $1.3 million in other costs. On November 30, 2007, we entered into a definitive agreement to sell the 73 operating Smokey Bones Barbeque & Grill restaurants to Barbeque Integrated, Inc. (BII), an affiliate of Sun Capital Partners, Inc., a worldwide private investment firm, for $82.0 million, net of selling costs of approximately $1.8 million. On December 31, 2007, we closed with BII on the sale of 62 of the restaurants, and as of February 24, 2008, we had closed on the sale of an additional ten restaurants for a total of 72 restaurants. The sale of the remaining restaurant closed on June 13, 2008. As of May 25, 2008, we received $81.5 million in net cash proceeds related to the sale and have recognized a gain on the sale of $18.0 million, which is included in earnings from discontinued operations for the fiscal year ended May 25, 2008.

For fiscal 2008, 2007 and 2006, all gains and losses on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to these restaurants have been aggregated to a single caption entitled earnings (losses) from discontinued operations, net of tax in our consolidated statements of earnings for all periods presented. Earnings (losses) from discontinued operations, net of taxes on our accompanying consolidated statements of earnings are comprised of the following:

(in millions)	Fiscal Year Ended
	May 25, 2008			May 27, 2007			May 28, 2006
Sales	$	120.7		$	357.9		$	367.0
Earnings (losses) before income taxes	$	10.7		$	(288.6	)	$	(25.7	)
Income tax (expense) benefit		(3.0	)		112.9			12.1
Net earnings (losses) from discontinued operations	$	7.7		$	(175.7	)	$	(13.6	)

As of May 25, 2008, the remaining assets associated with the abandoned restaurants reported as discontinued operations upon their closure in fiscal 2007 no longer met the criteria to be classified as held for sale as we do not believe it is likely the remaining assets will be sold within one year.

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The following is a detail of the assets and liabilities associated with the restaurants reported as discontinued operations and classified as held for sale in our accompanying consolidated balance sheet as of May 27, 2007 at fair value with comparative amounts of the assets, which were abandoned in fiscal 2007, but have not been sold as of May 25, 2008:

(in millions)	May 25, 2008		May 27, 2007
Current assets	$	—	$	44.6
Land, buildings and equipment, net		25.3		97.1
Other assets		—		2.3
Total assets	$	25.3	$	144.0
Current liabilities	$	—	$	37.1
Other liabilities		—		5.2
Total liabilities	$	—	$	42.3

The following is a reconciliation of accrued exit and disposal costs from May 27, 2007 to May 25, 2008, which are included in other current liabilities on the accompanying consolidated balance sheets and are expected to be paid in fiscal 2009:

(in millions)	Balance at May 27, 2007		Adjustments			Payments			Balance at May 25, 2008
Lease termination costs	$	6.2	$	0.5		$	(3.4	)	$	3.3
Other exit costs		1.0		(1.0	)		—			—
Total	$	7.2	$	(0.5	)	$	(3.4	)	$	3.3

NOTE 4 - RECEIVABLES, NET

Our accounts receivable is primarily comprised of receivables from national storage and distribution companies with which we contract to provide services that are billed to us on a per-case basis. In connection with these services, certain of our 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. We reacquire these items when the inventory is subsequently delivered to our restaurants. These transactions do not impact the consolidated statements of earnings. Receivables from national storage and distribution companies amounted to $21.5 million and $19.3 million at May 25, 2008 and May 27, 2007, respectively. In addition, at the end of fiscal 2008, a vendor owed us $18 million as part of an up-front three year service agreement, which is included in accounts receivable and was collected subsequent to May 25, 2008. This amount is also included in long-term liabilities, with the amount expected to be earned within one year recognized in other current liabilities. The amount earned each period, related to the upfront vendor payment, will be reflected as a reduction to restaurant expenses. The allowance for doubtful accounts associated with all of our receivables amounted to $3.6 million at May 25, 2008 and $1.6 million at May 27, 2007.

NOTE 5 –ASSET IMPAIRMENT, NET

During fiscal 2008 we recorded less than $0.1 million of long-lived asset impairment charges. During fiscal 2007, we recorded $2.6 million of long-lived asset impairment charges primarily related to the permanent closure of one Red Lobster and one Olive Garden restaurant. During fiscal 2007, we also recorded $0.2 million of gains related to the sale of previously impaired restaurants. During fiscal 2006, we recorded $1.5 million of long-lived asset impairment charges primarily related to the closing of three Red Lobster and two Olive Garden restaurants. During fiscal 2006, we also recorded $0.2 million of gains related to the sale of previously impaired restaurants. These costs are included in selling, general and administrative expenses as a component of earnings from continuing operations in the accompanying consolidated statements of earnings for fiscal 2008, 2007 and 2006. Impairment charges were measured based on the amount by which the carrying amount of these assets exceeded their fair value. Fair value is generally determined based on appraisals or sales prices of comparable assets and estimates of future cash flows.

The results of operations for all Red Lobster and Olive Garden restaurants permanently closed in fiscal 2008, 2007 and 2006 that would otherwise have met the criteria for discontinued operations reporting are not material to our consolidated financial position, results of operations or cash flows and, therefore, have not been presented as discontinued operations.

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NOTE 6 - LAND, BUILDINGS AND EQUIPMENT, NET

The components of land, buildings and equipment, net, are as follows:

(in millions)	May 25, 2008			May 27, 2007
Land	$	751.8		$	595.8
Buildings		2,846.4			2,299.7
Equipment		1,187.2			996.5
Assets under capital leases		68.6			—
Construction in progress		137.7			69.4
Total land, buildings and equipment		4,991.7			3,961.4
Less accumulated depreciation and amortization		(1,923.4	)		(1,777.0	)
Less depreciation associated with assets under capital leases		(2.3	)		—
Land, buildings, and equipment, net	$	3,066.0		$	2,184.4

On August 24, 2006, we completed the sale and leaseback of our Restaurant Support Center (RSC) for $45.2 million. The RSC houses all of our executive offices, shared service functions and concept administrative personnel. The transaction was completed in anticipation of moving the RSC to a new facility approximately three years from the date of sale. As a result of the sale and subsequent leaseback of the RSC, we recorded a $15.2 million deferred gain, which is being recognized over the three-year leaseback period on a straight-line basis. During fiscal 2008 and fiscal 2007, we recognized gains of $5.1 million and $2.8 million, respectively, on the sale of the RSC, which is included as a reduction of selling, general and administrative expenses in our consolidated statements of earnings.

NOTE 7 - OTHER ASSETS

The components of other assets are as follows:

(in millions)	May 25, 2008		May 27, 2007
Pension over-funding	$	26.8	$	17.1
Trust-owned life insurance		53.8		60.3
Capitalized software costs, net		27.4		30.4
Liquor licenses		38.5		23.6
Value of acquired below-market leases		23.8		—
Loan costs		19.6		8.6
Miscellaneous		31.9		11.0
Total other assets	$	221.8	$	151.0

NOTE 8 – SHORT-TERM DEBT

Short-term debt at May 25, 2008 consisted of $48.4 million and $130.0 million of unsecured commercial paper borrowings with original maturities of one month or less and borrowings under the New Revolving Credit Agreement (as defined in Note 10 – Long-Term Debt), respectively. As of May 25, 2008, commercial paper borrowings and borrowings under the New Revolving Credit Agreement bore interest rates of 2.85 percent and 3.14 percent, respectively. As of May 27, 2007, short-term debt consisted of unsecured commercial paper borrowings of $211.4 million.

NOTE 9 - OTHER CURRENT LIABILITIES

The components of other current liabilities are as follows:

(in millions)	May 25, 2008		May 27, 2007
Non-qualified deferred compensation plan	$	143.8	$	146.9
Sales and other taxes		52.6		42.3
Insurance-related		56.0		54.4
Miscellaneous		57.7		31.7
Employee benefits		36.0		18.1
Accrued interest		19.0		11.6
Total other current liabilities	$	365.1	$	305.0

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NOTE 10 - LONG-TERM DEBT

The components of long-term debt are as follows:

(in millions)	May 25, 2008			May 27, 2007
4.875% senior notes due August 2010	$	150.0		$	150.0
7.450% medium-term notes due April 2011		75.0			75.0
5.625% senior notes due October 2012		350.0			—
7.125% debentures due February 2016		100.0			100.0
6.200% senior notes due October 2017		500.0			—
6.000% senior notes due August 2035		150.0			150.0
6.800% senior notes due October 2037		300.0			—
ESOP loan with variable rate of interest (2.864% at May 25, 2008) due December 2018		15.5			19.1
Total long-term debt		1,640.5			494.1
Less issuance discount		(6.2	)		(2.5	)
Total long-term debt less issuance discount		1,634.3			491.6
Less current portion		—			—
Long-term debt, excluding current portion	$	1,634.3		$	491.6

Until September 20, 2007, we maintained a credit facility under a Credit Agreement dated August 16, 2005 (Prior Credit Agreement) with a consortium of banks under which we can borrow up to $500.0 million. As part of the Prior Credit Agreement, we could request issuance of up to $100.0 million in letters of credit, the outstanding amount of which reduced the net borrowing capacity under the Prior Credit Agreement. The Prior Credit Agreement allowed us to borrow at interest rates that varied based on a spread over (i) LIBOR or (ii) a base rate that was the higher of the prime rate or one-half of one percent above the federal funds rate, at our option. The interest rate spread over LIBOR was determined by our debt rating. We could also request that loans be made at interest rates offered by one or more of the banks, which may have varied from the LIBOR or base rate. The Prior Credit Agreement supported our commercial paper borrowing program and would have expired on August 15, 2010, but was terminated on September 20, 2007 in connection with the new credit arrangements described below.

On September 20, 2007, to fund the RARE acquisition, we entered into (i) a $750.0 million revolving Credit Agreement dated as of September 20, 2007 (New Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders (Revolving Credit Lenders) and other agents party thereto, and (ii) a $1.15 billion 364-Day Credit Agreement dated as of September 20, 2007 (Interim Credit Agreement) with BOA, as administrative agent, and the lenders thereto. The Interim Credit Agreement became available to us upon the consummation of the RARE acquisition. The Interim Credit Agreement and the New Revolving Credit Agreement were used to fund the RARE acquisition. On October 11, 2007, we completed the issuance of $1.15 billion aggregate principal amount of long-term senior notes described below, the proceeds of which were used to fully repay the Interim Credit Agreement.

The New Revolving Credit Agreement is a senior unsecured debt obligation of the Company and contains customary representations, affirmative and negative covenants (including limitations on liens and subsidiary debt, and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. As of May 25, 2008, we were in compliance with all covenants under the New Revolving Credit Agreement.

The New Revolving Credit Agreement expires on September 20, 2012, and the proceeds may be used for commercial paper back-up, working capital and capital expenditures, the refinancing of certain indebtedness, the partial financing of the RARE acquisition as well as general corporate purposes. The New Revolving Credit Agreement also contains a sub-limit of $150.0 million for the issuance of letters of credit. The borrowings and letters of credit obtained under the New Revolving Credit Agreement may be denominated in U.S. Dollars, Euro, Sterling, Yen, Canadian Dollars and each other currency approved by the Revolving Credit Lenders. The Company may elect to increase the commitments under the New Revolving Credit Agreement by up to $250.0 million (to an aggregate amount of up to $1.0 billion), subject to the Company obtaining commitments from new and existing lenders for the additional amounts.

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Loans under the New Revolving Credit Agreement bear interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid, or the base rate (which is defined as the higher of the BOA prime rate and the federal funds rate plus 0.500 percent). Assuming a “BBB” equivalent credit rating level, the applicable margin under the New Revolving Credit Agreement will be 0.350 percent. We may also request that loans under the New Revolving Credit Agreement be made at interest rates offered by one or more of the Revolving Credit Lenders, which may vary from the LIBOR or base rate, for up to $100.0 million of borrowings. The New Revolving Credit Agreement requires that we pay a facility fee on the total amount of such facility (ranging from 0.070 percent to 0.175 percent, based on our credit ratings) and, in the event that the outstanding amounts under the applicable New Revolving Credit Agreement exceeds 50 percent of such New Revolving Credit Agreement, a utilization fee on the total amount outstanding under such facility (ranging from 0.050 percent to 0.150 percent, based on our credit ratings). As of May 25, 2008, $130.0 million was outstanding under the New Revolving Credit Agreement. In addition, $48.4 million of commercial paper was outstanding as of May 25, 2008, which is backed by this facility.

On October 11, 2007, we issued $350.0 million of unsecured 5.625 percent senior notes due October 2012, $500.0 million of unsecured 6.200 percent senior notes due October 2017 and $300.0 million of unsecured 6.800 percent senior notes due October 2037 (collectively, the New Senior Notes) under a registration statement filed with the Securities and Exchange Commission on October 9, 2007. Discount and issuance costs, which were $4.3 million and $11.7 million, respectively, are being amortized over the terms of the New Senior Notes using the straight-line method, the results of which approximate the effective interest method. The interest rate payable on each series of the New Senior Notes will be subject to adjustment from time to time if the debt rating assigned to such series of the New Senior Notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of May 25, 2008, no such adjustments to the interest rates had been made. We may redeem any series of the New Senior Notes at any time in whole or from time to time in part, at the principal amount plus a make-whole premium. If we experience a change of control triggering event, we may be required to purchase the New Senior Notes from the holders.

All of our long-term debt currently outstanding is expected to be repaid entirely at maturity with interest being paid semi-annually over the life of the debt. The aggregate maturities of long-term debt for each of the five fiscal years subsequent to May 25, 2008, and thereafter are $0.0 million in 2009 and 2010, $225.0 million in 2011, $0.0 million in 2012, $350.0 million in 2013 and $1.06 billion thereafter.

NOTE 11 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use interest rate-related derivative instruments to manage our exposure on debt instruments, as well as commodities derivatives to manage our exposure to commodity price fluctuations. We also use equity-related derivative instruments to manage our exposure on cash compensation arrangements indexed to the market price of our common stock. By using these instruments, we expose ourselves, 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 us, which creates credit risk for us. We minimize 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, commodity prices, or the market price of our common stock. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

Option Contracts and Commodity Swaps

During fiscal 2008, 2007 and 2006, we entered into option contracts and commodity swaps to reduce the risk of natural gas 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 included in accumulated other comprehensive income (loss). These changes in fair value are subsequently reclassified into earnings as a component of restaurant expenses when the natural gas is purchased and used by us in our operations. Net gains (losses) of $0.4 million, ($4.6) million and $4.3 million related to these derivatives were reclassified to earnings during fiscal 2008, 2007 and 2006, respectively, in connection with the settlement of our contracts. As of May 25, 2008, we were party to natural gas commodity swaps with aggregate notional values of $11.3 million. The fair value of these contracts was a net gain of $0.1 million at May 25, 2008 and is expected to be reclassified from accumulated

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other comprehensive income (loss) into restaurant expenses during fiscal 2009. To the extent that these derivatives are no longer highly effective in offsetting changes in cash flows related to our purchases of natural gas, hedge accounting would be discontinued and future changes in their fair value would be immediately recognized in current earnings.

During fiscal 2008, we entered into commodity swaps to reduce the risk of fluctuations in the price we pay for butter during fiscal 2009. 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 included in accumulated other comprehensive income (loss). These changes in fair value will subsequently be reclassified into earnings as a component of food and beverage expenses when the butter is purchased and used by us in our operations. As of May 25, 2008, we were party to butter commodity swaps with aggregate notional values of $5.8 million. The fair value of these contracts was a net gain of $0.1 million at May 25, 2008 and is expected to be reclassified from accumulated other comprehensive income (loss) into restaurant expenses during fiscal 2009. To the extent that these derivatives are no longer highly effective in offsetting changes in cash flows related to our purchases of natural gas, hedge accounting would be discontinued and future changes in their fair value would be immediately recognized in current earnings.

The fair value of outstanding derivatives is included in other current assets or other current liabilities. At May 25, 2008, the fair value of our outstanding commodity swaps was $0.2 million and is included in other current assets in our accompanying consolidated balance sheets. As of May 25, 2008, the maximum length of time over which we are hedging our exposure to the variability in future cash flows related to the purchase of natural gas and butter is six months.

Interest Rate Lock Agreement

During the second quarter of fiscal 2008, we entered into treasury-lock derivative instruments with $550.0 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate prior to the issuance of the New Senior Notes, as changes in the benchmark interest rate would cause variability in our forecasted interest payments. These instruments were all settled at the issuance of the New Senior Notes for a cumulative gain of $6.2 million. This amount was recorded in accumulated other comprehensive income (loss) and will be reclassified into earnings as an adjustment to interest expense as interest on the New Senior Notes or similar debt is incurred. A gain of $0.5 million was recognized in earnings during fiscal 2008 as an adjustment to interest expense.

During the fourth quarter of fiscal 2008, we entered into treasury-lock derivative instruments with $100.0 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate associated with the expected issuance of long-term debt to refinance our existing long-term debt due to mature in fiscal 2011, as changes in the benchmark interest rate will cause variability in our forecasted interest payments. The fair value of these outstanding treasury-lock derivative instruments was a net gain of $2.3 million at May 25, 2008 and is expected to be reclassified from accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense as interest is incurred on the long-term debt expected to be issued in fiscal 2011.

Interest Rate Swaps

During fiscal 2005 and fiscal 2004, we entered into interest rate swap agreements (swaps) to hedge the risk of changes in interest rates on the cost of a future issuance of fixed-rate debt. The swaps, which had a $100.0 million notional principal amount of indebtedness, were used to hedge a portion of the interest payments associated with $150.0 million of unsecured 4.875 percent senior notes due in August 2010, which were issued in August 2005. The swaps were settled at the time of the related debt issuance with a net loss of $1.2 million being recognized in accumulated other comprehensive income (loss). The net loss on the swaps is being amortized into earnings as an adjustment to interest expense over the same period in which the related interest costs on the related debt issuance are being recognized in earnings. Losses of $0.2 million were recognized in earnings during fiscal 2008, 2007 and 2006 as an adjustment to interest expense.

We also had interest rate swaps with a notional amount of $200.0 million, which we used to convert variable rates on our long-term debt to fixed rates effective May 30, 1995, related to the issuance of our $150.0 million 6.375 percent notes due February 2006 and our $100.0 million 7.125 percent debentures due February 2016. We received the one-month commercial paper interest rate and paid fixed-rate interest ranging from 7.51 percent to 7.89 percent. The swaps were settled during January 1996 at a cost to us of $27.7 million. A portion of the cost was recognized as an

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adjustment to interest expense over the term of our 10-year 6.375 percent notes that were settled at maturity in February 2006. The remaining portion continues to be recognized as an adjustment to interest expense over the term of our 20-year 7.125 percent debentures due 2016. A loss of $0.6 million was recognized in earnings during fiscal 2008, 2007 and 2006 as an adjustment to interest expense.

Equity Forwards

During fiscal 2008, 2007, 2006 and 2005, we entered into equity forward contracts to hedge the risk of changes in future cash flows associated with the unvested, unrecognized Darden stock units granted during fiscal 2008, 2007, 2006 and 2005 (see Note 18 – Stock-Based Compensation for additional information). The equity forward contracts will be settled at the end of the vesting periods of their underlying Darden stock units, which range between four and five years. In total, the equity forward contracts are indexed to 0.6 million shares of our common stock, at varying forward rates between $19.52 per share and $41.17 per share, have a $16.9 million notional amount and can only be net settled in cash. To the extent the equity forward contracts are effective in offsetting the variability of the hedged cash flows, changes in the fair value of the equity forward contracts are not included in current earnings but are reported as accumulated other comprehensive income (loss). A deferred loss of $0.2 million related to the equity forward contracts was recognized in accumulated other comprehensive income (loss) at May 25, 2008. As the Darden stock units vest, we will effectively de-designate that portion of the equity forward contract that no longer qualifies for hedge accounting and changes in fair value associated with that portion of the equity forward contract will be recognized in current earnings. (Losses) gains of ($2.5) million, $2.5 million and $1.0 million were recognized in earnings as a component of restaurant labor during fiscal 2008, 2007 and 2006, respectively.

During fiscal 2006 and 2008, we entered into equity forward contracts to hedge the risk of changes in future cash flows associated with employee-directed investments in Darden stock within the non-qualified deferred compensation plan (see Note 17 – Retirement Plans for additional information). The equity forward contracts are indexed to 0.2 million shares of our common stock at forward rates between $23.41 and $37.44 per share, have $6.3 million in notional value, can only be net settled in cash and expire between fiscal 2011 and 2013. We did not elect hedge accounting with the expectation that changes in the fair value of the equity forward contracts would offset changes in the fair value of the Darden stock investments in the non-qualified deferred compensation plan within net earnings in our consolidated statements of earnings. (Losses) gains of ($0.6) million, $0.9 million and ($0.1) million related to the equity forward contracts were recognized in net earnings during fiscal 2008, 2007 and 2006, respectively.

NOTE 12 - FINANCIAL INSTRUMENTS

The fair values of cash equivalents, accounts receivable, accounts payable and short-term debt approximate their carrying amounts due to their short duration.

The carrying value and fair value of long-term debt at May 25, 2008 was $1.63 billion and $1.62 billion, respectively. The carrying value and fair value of long-term debt at May 27, 2007 was $491.6 million and $496.3 million, respectively. The fair value of long-term debt is determined based on market prices or, if market prices are not available, the present value of the underlying cash flows discounted at our incremental borrowing rates.

NOTE 13 - STOCKHOLDERS’ EQUITY

Treasury Stock

On June 16, 2006, our Board of Directors authorized an additional share repurchase authorization totaling 25.0 million shares in addition to the previous authorization of 137.4 million shares, bringing our total authorizations to 162.4 million. In fiscal 2008, 2007 and 2006, we purchased treasury stock totaling $159.4 million, $371.2 million and $434.2 million, respectively. At May 25, 2008, a total of 147.0 million shares had been repurchased under the authorizations. The repurchased common stock is reflected as a reduction of stockholders’ equity.

Stock Purchase/Loan Program

We have share ownership guidelines for our officers. To assist them in meeting these guidelines, we implemented the 1998 Stock Purchase/Option Award Loan Program (Loan Program) in conjunction with our Stock Option and Long-Term Incentive Plan of 1995. The Loan Program provided loans to our officers and awarded two options for every new share purchased, up to a maximum total share value equal to a designated percentage of the officer’s base compensation. Loans are full recourse and interest bearing, with a maximum principal amount of 75 percent of the

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value of the stock purchased. The stock purchased is held on deposit with us until the loan is repaid. The interest rate for loans under the Loan 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, respectively. Effective July 30, 2002, and in compliance with the Sarbanes-Oxley Act of 2002, we no longer issue new loans under the Loan Program. We account for outstanding officer notes receivable as a reduction of stockholders’ equity.

Stockholders’ Rights Plan

Under our Rights Agreement dated May 16, 2005, each share of our common stock has associated with it one right to purchase one-thousandth of a share of our Series A Participating Cumulative Preferred Stock at a purchase price of $120 per share, subject to adjustment under certain circumstances to prevent dilution. The rights are exercisable when, and are not transferable apart from our common stock until, a person or group has acquired 15 percent or more, or makes a tender offer for 15 percent or more, of our common stock. If the specified percentage of our common stock is then acquired, each right will entitle the holder (other than the acquiring company) to receive, upon exercise, common stock of either us or the acquiring company having a value equal to two times the exercise price of the right. The rights are redeemable by our Board of Directors under certain circumstances and expire on May 25, 2015.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows:

(in millions)	May 25, 2008			May 27, 2007
Foreign currency translation adjustment	$	(1.0	)	$	(4.3	)
Unrealized gains (losses) on derivatives, net of tax		4.5			3.8
SFAS No. 158 benefit plan funding position, net of tax		(24.2	)		(32.3	)
Total accumulated other comprehensive income (loss)	$	(20.7	)	$	(32.8	)

Reclassification adjustments associated with pre-tax net derivative gains (losses) realized in net earnings for fiscal 2008, 2007 and 2006 amounted to ($1.8) million, ($1.3) million and $5.0 million, respectively. The amortization of the unrecognized net actuarial loss component of our fiscal 2009 net periodic benefit cost for the defined benefit plans and postretirement benefit plan is expected to be approximately $0.4 million and $0.6 million, respectively.

NOTE 14 - LEASES

An analysis of rent expense incurred related to restaurants in continuing operations is as follows:

(in millions)	Fiscal Year
	2008		2007			2006
Restaurant minimum rent	$	88.1	$	64.3		$	59.9
Restaurant percentage rent		7.7		4.6			4.6
Restaurant rent averaging expense		8.6		(2.5	)		5.4
Transportation equipment		2.9		2.8			2.3
Office equipment		1.2		1.1			1.1
Office space		6.8		5.3			1.3
Warehouse space		0.4		0.3			0.3
Total rent expense	$	115.7	$	75.9		$	74.9

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Rent expense included in discontinued operations was $4.5 million, $4.4 million and $9.2 million for fiscal 2008, 2007 and 2006, respectively. The annual future lease commitments under capital lease obligations and noncancelable operating leases, including those related to restaurants reported as discontinued operations, for each of the five fiscal years subsequent to May 25, 2008 and thereafter is as follows:

Fiscal Year	Capital			Operating
2009	$	4.9		$	115.3
2010		5.0			104.9
2011		5.0			93.1
2012		5.1			79.9
2013		5.3			66.1
Thereafter		89.4			238.5
Total future lease commitments		114.7		$	697.8
Less imputed interest (at 6.5%)		(53.9	)
Present value of future lease commitments		60.8
Less current maturities		(0.9	)
Obligations under capital leases, net of current maturities	$	59.9

NOTE 15 - INTEREST, NET

The components of interest, net, are as follows:

(in millions)	Fiscal Year
	2008			2007			2006
Interest expense	$	89.2		$	43.6		$	48.9
Imputed interest on capital leases		2.6			—			—
Capitalized interest		(4.9	)		(2.9	)		(1.9	)
Interest income		(1.2	)		(0.6	)		(3.1	)
Interest, net	$	85.7		$	40.1		$	43.9

Capitalized interest was computed using our average borrowing rate. We paid $73.6 million, $35.8 million and $40.3 million for interest (net of amounts capitalized) in fiscal 2008, 2007 and 2006, respectively.

NOTE 16 - INCOME TAXES

Total income tax expense for fiscal 2008, 2007 and 2006 was allocated as follows:

(in millions)	Fiscal Year
	2008		2007			2006
Earnings from continuing operations	$	145.2	$	153.7		$	156.3
Earnings (losses) from discontinued operations		3.0		(112.9	)		(12.1	)
Total consolidated income tax expense	$	148.2	$	40.8		$	144.2
The components of earnings before income taxes from continuing operations and the provision for income taxes thereon are as follows:
(in millions)	Fiscal Year
	2008		2007			2006
Earnings from continuing operations before income taxes:
U.S.	$	509.6	$	524.9		$	500.6
Canada		5.1		5.9			7.5
Earnings from continuing operations before income taxes	$	514.7	$	530.8		$	508.1
Income taxes:
Current:
Federal	$	98.3	$	172.9		$	158.9
State and local		21.0		33.2			28.1
Canada		0.1		0.1			0.1
Total current	$	119.4	$	206.2		$	187.1
Deferred (principally U.S.)		25.8		(52.5	)		(30.8	)
Total income taxes	$	145.2	$	153.7		$	156.3

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During fiscal 2008, 2007 and 2006, we paid income taxes of $119.7 million, $75.9 million and $126.3 million, respectively.

The following table is a reconciliation of the U.S. statutory income tax rate to the effective income tax rate from continuing operations included in the accompanying consolidated statements of earnings:

	Fiscal Year
	2008		2007		2006
U.S. statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax benefits	2.7		3.3		3.1
Benefit of federal income tax credits	(7.9	)	(6.1	)	(5.1	)
Other, net	(1.6	)	(3.2	)	(2.2	)
Effective income tax rate	28.2	%	29.0	%	30.8	%

As of May 25, 2008, we had estimated current federal income taxes payable of $2.4 million, which is included in our accompanying consolidated balance sheet as income taxes payable and estimated current state income taxes receivable of $4.9 million, which is included in prepaid expenses and other current assets in our accompanying consolidated balance sheet.

As of May 28, 2007, upon adoption of FIN 48, we had gross unrecognized tax benefits of $64.1 million, which represents the aggregate tax effect of the differences between tax return positions and benefits recognized in our consolidated financial statements. At May 25, 2008, we had $77.5 million of unrecognized tax benefits. Of this total, approximately $29.9 million, after considering the federal impact on state issues, would favorably affect the effective tax rate if resolved in our favor. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

(in millions)
Balance upon adoption of FIN 48	$	64.1
Additions to tax positions due to acquisition of RARE		23.3
Additions to tax positions recorded during the current year		4.2
Additions to tax positions recorded during prior years		1.4
Reductions to tax positions recorded during prior years		(3.2	)
Reductions to tax positions due to settlements with taxing authorities		(4.1	)
Reductions to tax positions due to statute expiration		(8.2	)
Balance at May 25, 2008	$	77.5

We recognize accrued interest related to unrecognized tax benefits in interest expense. Penalties, when incurred, are recognized in selling, general and administrative expense. The Company accrued approximately $6.0 million for the payment of interest as of the date of adoption of FIN 48. During fiscal 2008, we recognized $2.0 million of interest expense associated with unrecognized tax benefits. Additionally, the balance of interest accrued increased by approximately $3.0 million due to the acquisition of RARE. At May 25, 2008, we had $11.0 million accrued for the payment of interest associated with unrecognized tax benefits.

The major jurisdictions in which the Company files income tax returns include the U.S. federal jurisdiction, Canada, and most states in the U.S. that have an income tax. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001.

Included in the balance of unrecognized tax benefits at May 25, 2008 is $24.5 million related to tax positions for which it is reasonably possible that the total amounts could materially change during the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions. Of this amount, approximately $19.8 million relates to items temporary in nature which will have no impact on our effective income tax rate.

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The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

(in millions)	May 25, 2008			May 27, 2007
Accrued liabilities	$	59.1		$	18.1
Compensation and employee benefits		141.4			118.6
Deferred rent and interest income		35.6			31.8
Asset disposition		3.5			0.6
Other		7.2			6.1
Gross deferred tax assets	$	246.8		$	175.2
Trademarks and other acquisition related intangibles		(182.1	)		—
Buildings and equipment		(145.1	)		(99.0	)
Prepaid pension costs		(10.3	)		(4.7	)
Prepaid interest		(1.0	)		(1.1	)
Capitalized software and other assets		(11.4	)		(10.1	)
Other		(2.7	)		(4.4	)
Gross deferred tax liabilities	$	(352.6	)	$	(119.3	)
Net deferred tax (liabilities) assets	$	(105.8	)	$	55.9

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. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At May 25, 2008 and May 27, 2007, no valuation allowance has been recognized for deferred tax assets because we believe that sufficient projected future taxable income will be generated to fully utilize the benefits of these deductible amounts.

NOTE 17 - - RETIREMENT PLANS

Defined Benefit Plans and Postretirement Benefit Plan

Substantially all of our employees are eligible to participate in a retirement plan. We sponsor non-contributory defined benefit pension plans, that have been frozen, for a group of salaried employees in the United States, in which benefits are based on various formulas that include years of service and compensation factors; and for a group of hourly employees in the United States, in which a fixed level of benefits is provided. Pension plan assets are primarily invested in U.S., international and private equities, long duration fixed-income securities and real assets. Our 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. We also sponsor a contributory postretirement benefit plan that provides health care benefits to our salaried retirees. During fiscal 2008, 2007 and 2006, we funded the defined benefit pension plans in the amounts of $0.5 million, $0.5 million and $0.3 million, respectively. We expect to contribute approximately $0.4 million to our defined benefit pension plans during fiscal 2009. During fiscal 2008, 2007 and 2006, we funded the postretirement benefit plan in the amounts of $1.2 million, $0.8 million and $0.4 million, respectively. We expect to contribute approximately $0.6 million to our postretirement benefit plan during fiscal 2009.

Effective May 27, 2007, we implemented the recognition and measurement provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106 and 132R).” The purpose of SFAS No. 158 is to improve the overall financial statement presentation of pension and other postretirement plans, but SFAS No. 158 does not impact the determination of net periodic benefit cost or measurement of plan assets or obligations. SFAS No. 158 requires companies to recognize the over or under-funded status of the plan as an asset or liability as measured by the difference between the fair value of the plan assets and the benefit obligation and requires any unrecognized prior service costs and actuarial gains and losses to be recognized as a component of accumulated other comprehensive income (loss).

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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 29, 2008 and February 28, 2007 (in accordance with the provisions of SFAS No. 158, we will be required to value our plan assets and funded status as of the end of our fiscal year starting in fiscal 2009 and the adoption of the requirement is considered to have minimal impact on our financial condition):

(in millions)	Defined Benefit Plans						Postretirement Benefit Plan
	2008			2007			2008			2007
Change in Benefit Obligation:
Benefit obligation at beginning of period	$	177.7		$	168.3		$	20.1		$	17.7
Service cost		6.1			6.0			0.7			0.7
Interest cost		9.7			9.0			1.2			1.0
Plan amendments		0.7			—			—			(0.3	)
Participant contributions		—			—			0.4			0.2
Benefits paid		(8.6	)		(7.2	)		(1.4	)		(0.8	)
Actuarial (gain) loss		(15.9	)		1.6			4.7			1.6
Benefit obligation at end of period	$	169.7		$	177.7		$	25.7		$	20.1
Change in Plan Assets:
Fair value at beginning of period	$	189.7		$	175.3		$	—		$	—
Actual return on plan assets		10.2			21.2			—			—
Employer contributions		0.4			0.4			1.0			0.6
Participant contributions		—			—			0.4			0.2
Benefits paid		(8.6	)		(7.2	)		(1.4	)		(0.8	)
Fair value at end of period	$	191.7		$	189.7		$	—		$	—
Reconciliation of the Plan’s Funded Status:
Funded status at end of period	$	22.0		$	12.0		$	(25.7	)	$	(20.1	)
Contributions for March to May		0.1			0.1			0.3			0.2
Prepaid (accrued) benefit costs	$	22.1		$	12.1		$	(25.4	)	$	(19.9	)
The following is a detail of the net funded status of each of our plans of May 25, 2008 and May 27, 2007 and a reconciliation of the amounts included in accumulated other comprehensive income (loss) as of May 25, 2008 and May 27, 2007:
(in millions)	Defined Benefit Plans						Postretirement Benefit Plan
	2008			2007			2008			2007
Components of the Consolidated Balance Sheets:
Non-current assets	$	26.8		$	17.1		$	—		$	—
Current liabilities		(0.4	)		—			(0.6	)		—
Non-current liabilities		(4.3	)		(5.0	)		(24.8	)		(19.9	)
Net amounts recognized	$	22.1		$	12.1		$	(25.4	)	$	(19.9	)
Amounts Recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
Unrecognized prior service cost	$	0.4		$	0.1		$	(0.2	)	$	(0.2	)
Unrecognized actuarial loss		12.3			21.9			6.3			3.5
Net amounts recognized	$	12.7		$	22.0		$	6.1		$	3.3

The accumulated benefit obligation for all pension plans was $164.7 million and $171.1 million at May 25, 2008 and May 27, 2007, respectively. The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4.9 million and $0.0 million, respectively, at February 29, 2008 and $5.1 million and $0.0 million, respectively, at February 28, 2007. The projected benefit obligation for pension plans with projected benefit obligations in excess of plan assets approximated their accumulated benefit obligation at February 29, 2008 and February 28, 2007.

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The following table presents the weighted-average assumptions used to determine benefit obligations and net expense:

	Defined Benefit Plans				Postretirement Benefit Plan
	2008		2007		2008		2007
Weighted-average assumptions used to determine benefit obligations at May 25 and May 27 (1)
Discount rate	6.50	%	5.80	%	6.50	%	5.80	%
Rate of future compensation increases	3.75	%	3.75	%	N/A		N/A
Weighted-average assumptions used to determine net expense for fiscal years ended May 25 and May 27 (2)
Discount rate	5.80	%	5.75	%	5.80	%	5.75	%
Expected long-term rate of return on plan assets	9.00	%	9.00	%	N/A		N/A
Rate of future compensation increases	3.75	%	3.75	%	N/A		N/A

(1) Determined as of the end of fiscal year.

(2) Determined as of the beginning of fiscal year.

We set the discount rate assumption annually for each of the plans at their valuation dates to reflect the yield of high-quality fixed-income debt instruments, with lives that approximate the maturity of the plan benefits. The expected long-term rate of return on plan assets and health care cost trend rates are based upon several factors, including our historical assumptions compared with actual results, an analysis of current market conditions, asset fund allocations and the views of leading financial advisers and economists. Our target asset fund allocation is 35 percent U.S. equities, 30 percent high-quality, long-duration fixed-income securities, 15 percent international equities, 10 percent real assets and 10 percent private equities. We monitor our actual asset fund allocation to ensure that it approximates our target allocation and believe that our long-term asset fund allocation will continue to approximate our target allocation. The defined benefit pension plans have the following asset fund allocations at their measurement dates of February 29, 2008 and February 28, 2007, respectively:

Asset Fund Classification	2008		2007
U.S. equities	32	%	39	%
High-quality, long-duration fixed-income securities	25	%	20	%
International equities	18	%	19	%
Real assets	12	%	12	%
Private equities	13	%	10	%
Total	100	%	100	%

For fiscal 2008, 2007 and 2006, we have used an expected long-term rate of return on plan assets for our defined benefit plan of 9.0 percent. Our historical ten-year rate of return on plan assets, calculated using the geometric method average of returns, is approximately 9.4 percent as of May 25, 2008.

The discount rate and expected return on plan assets assumptions have a significant effect on amounts reported for defined benefit pension plans. A quarter percentage point change in the defined benefit plans’ discount rate and the expected long-term rate of return on plan assets would increase or decrease earnings before income taxes by $0.9 million and $0.4 million, respectively.

The assumed health care cost trend rate increase in the per-capita charges for benefits ranged from 8 percent to 9 percent for fiscal 2009, depending on the medical service category. The rates gradually decrease to 5 percent through fiscal 2013 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 postretirement benefit cost by $0.5 million and $0.3 million, respectively, and would increase or decrease the accumulated postretirement benefit obligation by $4.4 million and $3.9 million, respectively.

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Components of net periodic benefit cost are as follows:

(in millions)	Defined Benefit Plans									Postretirement Benefit Plan
	2008			2007			2006			2008			2007		2006
Service cost	$	6.1		$	6.0		$	5.2		$	0.7		$	0.7	$	0.7
Interest cost		9.7			9.0			8.1			1.2			1.0		0.9
Expected return on plan assets		(14.8	)		(13.7	)		(13.2	)		—			—		—
Amortization of unrecognized prior service cost		0.1			0.1			0.1			(0.1	)		—		—
Recognized net actuarial loss		4.3			5.4			5.3			0.3			0.2		0.2
Net periodic benefit cost	$	5.4		$	6.8		$	5.5		$	2.1		$	1.9	$	1.8

The amortization of the net actuarial loss component of our fiscal 2009 net periodic benefit cost for the defined benefit plans and postretirement benefit plan is expected to be approximately $0.4 million and $0.6 million, respectively.

The following benefit payments are expected to be paid:

(in millions)	Defined Benefit Plans		Postretirement Benefit Plan
2009	$	8.8	$	0.6
2010		9.4		0.7
2011		9.7		0.8
2012		10.2		0.9
2013		10.7		1.0
2014-2018		63.2		6.6

Postemployment Severance Plan

We accrue for postemployment severance costs in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43,” and use guidance found in SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” to measure the cost recognized in our consolidated financial statements. As a result, we use the provisions of SFAS No. 158 to recognize actuarial gains and losses related to our postemployment severance accrual as a component of accumulated other comprehensive income (loss). As of May 25, 2008 and May 27, 2007, $5.4 million and $7.0 million, respectively, of unrecognized actuarial losses related to our postemployment severance plan were included in accumulated other comprehensive income (loss) on a net of tax basis.

Defined Contribution Plan

We have a defined contribution plan covering most employees age 21 and older. We match contributions for participants with at least one year of service up to six percent of compensation, based on our performance. The match ranges from a minimum of $0.25 to $1.20 for each dollar contributed by the participant. The plan had net assets of $469.0 million at May 25, 2008 and $618.8 million at May 27, 2007. Expense recognized in fiscal 2008, 2007 and, 2006 was $1.3 million, $0.8 million and $1.4 million, respectively. Employees classified as “highly compensated” under the Internal Revenue Code are not eligible to participate in this plan. Instead, highly compensated employees are eligible to participate in a separate non-qualified deferred compensation plan. This plan allows eligible employees to defer the payment of part of their annual salary and all or part of their annual bonus and provides for awards that approximate the matching contributions and other amounts that participants would have received had they been eligible to participate in our defined contribution and defined benefit plans. Amounts payable to highly compensated employees under the non-qualified deferred compensation plan totaled $143.8 million and $146.9 million at May 25, 2008 and May 27, 2007, respectively. These amounts are included in other current liabilities.

The defined contribution plan includes an Employee Stock Ownership Plan (ESOP). This ESOP originally borrowed $50.0 million from third parties, with guarantees by us, and borrowed $25.0 million from us at a variable interest rate. The $50.0 million third party loan was refinanced in 1997 by a commercial bank’s loan to us and a corresponding loan from us to the ESOP. Compensation expense is recognized as contributions are accrued. In addition to matching plan participant contributions, our contributions to the plan are also made to pay certain employee incentive bonuses. Fluctuations in our 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 2008, 2007 and 2006, the ESOP incurred interest expense of $0.9 million, $1.2 million

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and $1.1 million, respectively, and used dividends received of $4.4 million, $3.6 million and $3.0 million, respectively, and contributions received from us of $0.0 million, $0.7 million and $1.7 million, respectively, to pay principal and interest on our debt.

ESOP shares are included in average common shares outstanding for purposes of calculating net earnings per share. At May 25, 2008, the ESOP’s debt to us had a balance of $15.5 million with a variable rate of interest of 2.864 percent and is due to be repaid no later than December 2014. The number of our common shares held in the ESOP at May 25, 2008 approximated 6.8 million shares, representing 3.9 million allocated shares and 2.9 million suspense shares.

At the end of fiscal 2005, the ESOP borrowed $1.6 million from us at a variable interest rate and acquired an additional 0.05 million shares of our common stock, which were held in suspense within the ESOP at May 29, 2005. The loan, which had a variable interest rate of 2.864 percent at May 25, 2008, is due to be repaid no later than December 2018. The shares acquired under this loan are accounted for in accordance with Statement of Position (SOP) 93-6, “Employers Accounting for Employee Stock Ownership Plans.” Fluctuations in our stock price are recognized as adjustments to common stock and surplus when the shares are committed to be released. These ESOP shares are not considered outstanding until they are committed to be released and, therefore, have been excluded for purposes of calculating basic and diluted net earnings per share at May 25, 2008. The fair value of these shares at May 25, 2008 was $1.5 million.

As part of the RARE acquisition, we assumed RARE’s employee benefit plans. We intend to merge these plans into our existing employee benefit plans during fiscal 2009. However, from the date of acquisition, through May, 25, 2008, we maintained RARE’s benefit plans as they had operated prior to the acquisition. As of the date of acquisition, RARE provided its employees who met minimum service requirements with retirement benefits under a 401(k) plan (RARE Plan). Under the RARE Plan, eligible employees may make contributions of between 1 percent and 20 percent of their annual compensation to one or more investment funds. Officers and highly compensated employees did not participate in the RARE Plan. Quarterly matching contributions were made in an amount equal to 50 percent of the first 5 percent of employee compensation contributed, resulting in a maximum annual company contribution of 2.5 percent of employee compensation. For the period from the date of acquisition through the end of fiscal 2008, we incurred expense under the RARE Plan of $0.6 million.

Effective January 1, 2000, RARE implemented the Supplemental Deferred Compensation Plan (Supplemental Plan), a nonqualified plan which allowed officers and highly compensated employees to defer receipt of a portion of their compensation and contribute such amounts to one or more investment funds. The maximum aggregate amount deferred under the Supplemental Plan and the RARE Plan could not exceed the lesser of 20 percent of annual compensation or $50,000. Quarterly matching contributions were made in an amount equal to 50 percent of the first 5 percent of employee compensation contributed, with a maximum annual company contribution of the lesser of 2.5 percent of employee compensation or $5,750. For the period from the date of acquisition through the end of fiscal 2008, we incurred expense under the Supplemental Plan of $0.4 million. Upon the acquisition of RARE, all unvested Company contributions to both the RARE Plan and the Supplemental Plan were immediately vested, however, contributions subsequent to the date of acquisition vest according to the plans’ provisions. Company contributions vest at a rate of 20 percent each year beginning after the employee’s first year of service and are made in the form of cash. The Company entered into a rabbi trust agreement to protect the assets of the Supplemental Plan. Participants’ accounts are comprised of their contribution; the company’s matching contribution and each participant’s share of earnings or losses in the Supplemental Plan. In accordance with EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Are Held in a Rabbi Trust and Invested,” the accounts of the rabbi trust are reported in our consolidated financial statements. Our consolidated balance sheet includes the investments in other assets and the offsetting obligation is included in other liabilities. As of May 25, 2008, the balance of the Supplemental Plan was $13.2 million. The Supplemental Plan investments are considered trading securities and are reported at fair value with the realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, recorded in selling, general and administrative expenses.

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NOTE 18 - STOCK-BASED COMPENSATION

We maintain two active stock option and stock grant plans under which new awards may still be issued, known as the Darden Restaurants, Inc. 2002 Stock Incentive Plan (2002 Plan) and the RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan (RARE Plan). We also have three other stock option and stock grant plans under which we no longer can grant new awards, although awards outstanding under the plans may still vest and be exercised in accordance with their terms: the Stock Plan for Directors (Director Stock Plan), the Stock Option and Long-Term Incentive Plan of 1995 (1995 Plan) and the Restaurant Management and Employee Stock Plan of 2000 (2000 Plan). All of the plans are administered by the Compensation Committee of the Board of Directors. The 2002 Plan provides for the issuance of up to 9.55 million common shares in connection with the granting of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), stock awards and other stock-based awards to key employees and non-employee directors. The RARE Plan provides for the issuance of up to 3.9 million common shares in connection with the granting of non-qualified stock options, incentive stock options and restricted stock to employees. Awards under the RARE Plan are only permitted to be granted to employees who were employed by RARE as of the date of acquisition and continued their employment with the Company. The Director Stock Plan provided for the issuance of up to 0.375 million common shares out of our treasury in connection with the granting of non-qualified stock options, restricted stock and RSUs to non-employee directors. No new awards could be granted under the Director Stock Plan after September 30, 2000. The Director Compensation Plan provided for the issuance of 0.1 million shares common shares out of our treasury to non-employee directors of the Board. No new awards may be granted under the Director Compensation Plan after September 30, 2005. The 1995 Plan provided for the issuance of up to 33.3 million common shares in connection with the granting of non-qualified stock options, restricted stock or RSUs to key employees. The 2000 Plan provided for the issuance of up to 5.4 million shares of common stock out of our treasury as non-qualified stock options, restricted stock or RSUs. Under all of these plans, stock options are granted at a price equal to the fair 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 one to four years. Restricted stock and RSUs granted under the 1995 Plan, the 2000 Plan and the 2002 Plan 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 Compensation Committee.

On June 20, 2008, the Board of Directors adopted amendments to the 2002 Plan subject to approval by our shareholders at the September 2008 annual meeting of shareholders. If approved by the shareholders, the amendments, among other things, would increase the maximum number of shares authorized for issuance under the 2002 Plan from 9.55 million to 12.70 million. On June 19, 2008, the Compensation Committee of the Board of Directors approved amendments to the Rare Plan, to provide a “fungible share pool” approach to manage authorized shares under the RARE Plan. On June 16, 2006, the Board of Directors adopted amendments to the 2002 Plan, which were approved by our shareholders at the September 2006 annual meeting of shareholders. The amendments, among other things, implemented a “fungible share pool” approach to manage authorized shares in order to improve the flexibility of awards going forward, and eliminated the limits on the number of restricted stock and RSU awards and the number of awards to non-employee directors, and provided that, in determining the number of shares available for grant, a formula will be applied such that all future awards other than stock options and stock appreciation rights will be counted as double the number of shares covered by such award.

On December 15, 2005, the Board of Directors approved the Director Compensation Program, effective as of October 1, 2005, for Non-Employee Directors. The Director Compensation Program provides for payments to non-employee directors of: (a) an annual retainer and meeting fees for regular or special Board meetings and committee meetings; (b) an initial award of non-qualified stock options to purchase 12.5 thousand shares of common stock upon becoming a director of the Company for the first time; (c) an additional award of non-qualified stock options to purchase 3.0 thousand shares of common stock annually upon election or re-election to the Board; and (d) an annual award of common stock with a fair market value of $0.1 million on the date of grant. Directors may elect to have their cash compensation paid in any combination of current or deferred cash, common stock or salary replacement options. Deferred cash compensation may be invested on a tax-deferred basis in the same manner as deferrals under our non-qualified deferred compensation plan. Prior to the date of grant, directors may elect to have their annual stock award paid in the form of common stock or cash, or a combination thereof, or deferred. To the extent directors elect to receive cash or cash settled awards, the value of the awards are carried as a liability on our consolidated balance sheet at fair value until such time as it is settled. All stock options and other stock or stock-based awards that are part of the compensation paid or deferred pursuant to the Director Compensation Program are awarded under the 2002 Plan.

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The Director Compensation Program was amended, effective September 1, 2008, to eliminate payment of meeting fees for regular Board meetings, as well as the initial and annual grant of stock options. As of September 1, 2008, our Director Compensation Program provides for payments to non-employee directors of: (a) an annual retainer and meeting fees for special Board meetings and committee meetings; (b) an additional annual retainer for committee chairs; and (c) an annual award of common stock with a fair market value of $0.1 million on the date of grant.

Stock-based compensation expense included in continuing operations for fiscal 2008, 2007 and 2006 was as follows:

(in millions)	Fiscal Year
	2008		2007		2006
Stock options	$	25.2	$	15.8	$	—
Restricted stock/restricted stock units		12.9		5.2		7.0
Darden stock units		4.2		5.6		4.2
Performance stock units		4.1		2.6		—
Employee stock purchase plan		1.6		1.3		—
Director compensation program/other		0.9		1.1		1.3
	$	48.9	$	31.6	$	12.5

The following table presents a summary of our stock option activity as of and for the year ended May 25, 2008:

	Options (in millions)		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Yrs)	Aggregate Intrinsic Value (in millions)
Outstanding beginning of period	16.1		$	21.93
Options granted	2.0			40.36
RARE options converted	2.4			29.38
Options exercised	(3.3	)		21.04
Options cancelled	(0.5	)		21.87
Outstanding end of period	16.7		$	25.38	5.38	$	424.3
Exercisable	11.4		$	20.75	4.17	$	237.5

The weighted-average fair value of non-qualified stock options granted during fiscal 2008, 2007 and 2006 used in computing compensation expense in fiscal 2008 and fiscal 2007 and pro-forma compensation expense in fiscal 2006 was $14.05, $13.87 and $10.68, respectively. The total intrinsic value of options exercised during fiscal 2008, 2007 and 2006 was $57.9 million, $97.8 million and $86.6 million, respectively. Cash received from option exercises during fiscal 2008 and fiscal 2007 was $61.5 million and $50.9 million, respectively. Stock options have a maximum contractual period of ten years from the date of grant. We settle employee stock option exercises with authorized but unissued shares of Darden common stock or treasury shares we have acquired through our ongoing share repurchase program.

Pursuant to the acquisition of RARE, we converted employee stock options to purchase 2.7 million outstanding shares of RARE common stock to options to purchase 2.4 million shares of Darden common stock. RARE options converted at approximately an 89 percent ratio based on a formula set forth in the merger agreement governing this acquisition. The conversion of these options and the related fiscal 2008 activity is included in the rollforward above. As of May 25, 2008, 1.3 million of these options remained outstanding. The total value of the options was $42.9 million, $31.9 million of which was included in the cost of the acquisition, as this value related to vested awards as of the acquisition date. The remaining $11.0 million relates to the value of the unvested awards that is being charged as an expense subsequent to the acquisition. From the date of acquisition through May 25, 2008, included in total stock option expense, we recognized $9.3 million ($5.7 million net of tax) of stock-based compensation expense as a result of the incremental value associated with the vested awards, incremental vesting of the awards and accelerated vesting of certain awards granted in the merger agreement. The remaining $1.7 million will be recognized as compensation expense over the remaining service period of the related awards.

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As of May 25, 2008, there was $34.2 million of unrecognized compensation cost related to unvested stock options granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of stock options that vested during fiscal 2008 was $20.8 million.

Restricted stock and RSUs are granted at a value equal to the market price of our common stock on the date of grant. Restrictions lapse with regard to restricted stock, and RSUs are settled in shares, at the end of their vesting periods, which is generally four years.

The following table presents a summary of our restricted stock and RSU activity as of and for the fiscal year ended May 25, 2008:

	Shares (in millions)		Weighted-Average Grant Date Fair Value Per Share
Outstanding beginning of period	1.2		$	25.98
Shares granted	0.3			39.55
RARE shares converted	0.4			43.00
Shares vested	(0.4	)		32.96
Shares cancelled	(0.1	)		28.97
Outstanding end of period	1.4		$	31.40

As of May 25, 2008, there was $20.6 million of unrecognized compensation cost related to unvested restricted stock and RSUs granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of restricted stock and RSUs that vested during fiscal 2008, 2007 and, 2006 was $13.1 million, $5.4 million and $5.2 million, respectively.

Pursuant to the acquisition of RARE, we converted 0.5 million outstanding shares of RARE employee restricted stock and performance-based restricted stock units to 0.4 million shares of Darden restricted stock. The RARE restricted shares converted at approximately an 89 percent ratio based on a formula set forth in the merger agreement. The conversion of these shares and the related fiscal 2008 activity is included in the rollforward above. As of May 25, 2008, 0.2 million of these shares remained outstanding. The total value of the restricted shares was $16.8 million, $8.6 million of which was included in the cost of the acquisition as this value related to vested awards as of the acquisition date. The remaining $8.2 million relates to the value of the unvested awards and will be charged to expense subsequent to the acquisition. From the date of acquisition through May 25, 2008, included in the total restricted stock and RSU expense, we recognized $3.7 million ($2.3 million net of tax) of stock-based compensation expense as a result of incremental vesting of the awards and accelerated vesting of certain awards granted in the merger agreement. The remaining $4.5 million will be recognized as compensation expense over the remaining service period of the related awards.

Darden stock units are granted at a value equal to the market price of our common stock on the date of grant and will be settled in cash at the end of their vesting periods, which range between four and five years, at the then market price of our common stock. Compensation expense is measured based on the market price of our common stock each period, is amortized over the vesting period and the vested portion is carried as a liability in our accompanying consolidated balance sheets. We also entered into equity forward contracts to hedge the risk of changes in future cash flows associated with the unvested, unrecognized Darden stock units granted during fiscal 2008, 2007 and 2006 (see Note 11 – Derivative Instruments and Hedging Activities for additional information).

The following table presents a summary of our Darden stock unit activity as of and for the fiscal year ended May 25, 2008:

	Units (in millions)		Weighted-Average Fair Value Per Unit
Outstanding beginning of period	1.0		$	45.32
Units granted	0.2			42.46
Units vested	—			—
Units cancelled	(0.1	)		39.31
Outstanding end of period	1.1		$	31.74

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As of May 25, 2008, there was $14.7 million of unrecognized compensation cost related to Darden stock units granted under our incentive plans. This cost is expected to be recognized over a weighted-average period of 3.0 years. Darden stock units with a fair value of $0.1 million vested during fiscal 2008.

The following table presents a summary of our performance stock unit activity as of and for the fiscal year ended May 25, 2008:

	Units (in millions)		Weighted-Average Fair Value Per Unit
Outstanding beginning of period	0.3		$	36.13
Units granted	0.3			42.20
Units vested	(0.1	)		35.98
Units cancelled	—			—
Outstanding end of period	0.5		$	39.43

The performance stock units vest over a period of five years following the date of grant, and the annual vesting target for each fiscal year is 20.0 percent of the total number of units covered by the award. The number of units that actually vests each year will be determined based on the achievement of Company performance criteria set forth in the award agreement and may range from zero to 150.0 percent of the annual target. These awards may be settled in cash or shares of common stock, at the election of the Company on the date of grant. The Company has elected to settle all performance stock units granted through May 25, 2008 in shares of common stock. Holders will receive one share of common stock for each performance stock unit that vests. Compensation expense is measured based on grant date fair value. As of May 25, 2008, there was $12.7 million of unrecognized compensation cost related to unvested performance stock units granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 4.3 years. The total fair value of performance stock units that vested in fiscal 2008 was $1.1 million.

We maintain an Employee Stock Purchase Plan to provide eligible employees who have completed one year of service (excluding senior officers subject to Section 16(b) of the Securities Exchange Act of 1934, and certain other employees who are employed less than full time or own five percent or more of our capital stock or that of any subsidiary) an opportunity to invest up to $5.0 thousand per calendar quarter to purchase shares of our common stock, subject to certain limitations. Under the plan, up to an aggregate of 3.6 million shares are available for purchase by employees at a purchase price that is 85.0 percent of the fair market value of our common stock on either the first or last trading day of each calendar quarter, whichever is lower. Cash received from employees pursuant to the plan during fiscal 2008, 2007 and 2006 was $6.6 million, $5.8 million and $6.2 million, respectively.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

As collateral for performance on contracts and as credit guarantees to banks and insurers, we were contingently liable for guarantees of subsidiary obligations under standby letters of credit. At May 25, 2008 and May 27, 2007, we had $64.4 million and $75.0 million, respectively, of standby letters of credit related to workers’ compensation and general liabilities accrued in our consolidated financial statements. At May 25, 2008 and May 27, 2007, we had $10.0 million and $10.4 million, respectively, of standby letters of credit related to contractual operating lease obligations and other payments. All standby letters of credit are renewable annually.

At May 25, 2008 and May 27, 2007, we had $5.8 million and $0.9 million, respectively, of guarantees associated with leased properties that have been assigned to third parties. These amounts represent the maximum potential amount of future payments under the guarantees. The fair value of these potential payments discounted at our pre-tax cost of capital at May 25, 2008 and May 27, 2007, amounted to $4.2 million and $0.7 million, respectively. We did not accrue for the guarantees, as the likelihood of the third parties defaulting on the assignment agreements was deemed to be less than probable. In the event of default by a third party, the indemnity and default clauses in our assignment agreements govern our ability to recover from and pursue the third party for damages incurred as a result of its default. We do not hold any third-party assets as collateral related to these assignment agreements, except to the extent that the assignment allows us to repossess the building and personal property. These guarantees expire over their respective lease terms, which range from fiscal 2009 through fiscal 2017.

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We are subject to private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to operational issues common to the restaurant industry, and can also involve infringement of, or challenges to, our trademarks. While the resolution of a lawsuit, proceeding or claim may have an impact on our financial results for the period in which it is resolved, we believe that the final disposition of the lawsuits, proceedings and claims in which we are currently involved, either individually or in the aggregate, will not have a material adverse effect on our financial position, results of operations or liquidity. The following is a brief description of the more significant of these matters. In view of the inherent uncertainties of litigation, the outcome of any unresolved matter described below cannot be predicted at this time, nor can the amount of any potential loss be reasonably estimated.

Like other restaurant companies and retail employers, in a few states we have been faced with allegations of purported class-wide wage and hour violations. In January 2004, a former food server filed a purported class action in California state court alleging that Red Lobster’s “server banking” policies and practices (under which servers settle guest checks directly with customers throughout their shifts, and turn in collected monies at the shift’s end) improperly required her and other food servers and bartenders to make up cash shortages and walkouts in violation of California law. The case was ordered to arbitration. As a procedural matter, the arbitrator ruled that class-wide arbitration is permissible under our dispute resolution program. In January 2007, plaintiffs’ counsel filed in California state court a second purported class action lawsuit on behalf of servers and bartenders alleging that Olive Garden’s server banking policy and its alleged failure to pay split shift premiums violated California law. Although we believed that our policies and practices were lawful and that we had strong defenses to both cases, following mediation with the plaintiffs, we reached a tentative resolution of the matters during the third quarter of fiscal 2008. As a result, we accrued approximately $4.0 million in legal settlement costs during the nine months ended February 24, 2008, which we expect to be paid in fiscal 2009. No additional reserves have been taken in connection with this settlement.

In August 2007, an action was filed in California state court by a former Olive Garden server alleging that Olive Garden’s scheduling practices resulted in failure to properly pay reporting time (minimum shift) pay as well as to pay minimum wage, to provide itemized wage statements, and to timely pay employees upon the termination of their employment. The complaint sought to have the suit certified as a class action. Although we believed that our policies and practices were lawful and we had strong defenses, following mediation with the plaintiffs during the fourth quarter of fiscal 2008, we reached a preliminary settlement of this matter under which we would pay $0.7 million. We expect to pay the settlement amount during fiscal 2009 at the completion of the settlement process.

On March 13, 2008, a purported class action complaint alleging violation of the federal securities laws was filed by an institutional shareholder against Darden and certain of our current officers, one of whom is also a director, in the United States District Court for the Middle District of Florida. The complaint was filed on behalf of all purchasers of Darden’s common stock between June 19, 2007 and December 18, 2007 (the “Class”). The complaint alleges that during that period, the defendants issued false and misleading statements in press releases and public filings that misrepresented and failed to disclose certain information, and that as a result, had no reasonable basis for statements about Darden’s prospects and guidance for fiscal 2008. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover unspecified damages on behalf of the Class. We intend to vigorously defend our position in this action.

By letter dated May 9, 2008, a putative shareholder demanded that our Board of Directors take action to remedy alleged breaches of fiduciary duty to the Corporation by certain officers and directors. The letter contains similar allegations to those in the purported class action described above regarding the alleged issuance of false and misleading statements and omissions regarding the Corporation’s financial results and sales growth. The board has formed a special litigation committee to evaluate the claims in the letter.

NOTE 20 – SUBSEQUENT EVENT

On June 20, 2008, the Board of Directors declared a cash dividend of twenty cents per share to be paid August 1, 2008 to all shareholders of record as of the close of business on July 10, 2008.

54

NOTE 21 - QUARTERLY DATA (UNAUDITED)

The following table summarizes unaudited quarterly data for fiscal 2008 and fiscal 2007:

(in millions)	Fiscal 2008 - Quarters Ended
	Aug. 26			Nov. 25			Feb. 24			May 25			Total
Sales	$	1,467.5		$	1,522.0		$	1,811.4		$	1,825.5		$	6,626.5
Earnings before income taxes		151.9			59.2			156.9			146.6			514.7
Earnings from continuing operations		106.6			44.1			115.6			103.3			369.5
Losses from discontinued operations, net of tax		(0.7	)		(0.6	)		10.4			(1.5	)		7.7
Net earnings		105.9			43.5			126.0			101.8			377.2
Basic net earnings per share:
Earnings from continuing operations		0.76			0.31			0.82			0.74			2.63
(Losses) earnings from discontinued operations		(0.01	)		0.00			0.08			(0.01	)		0.06
Net earnings		0.75			0.31			0.90			0.73			2.69
Diluted net earnings per share:
Earnings from continuing operations		0.73			0.30			0.80			0.72			2.55
(Losses) earnings from discontinued operations		(0.01	)		0.00			0.08			(0.01	)		0.05
Net earnings		0.72			0.30			0.88			0.71			2.60
Dividends paid per share		0.18			0.18			0.18			0.18			0.72
Stock price:
High		47.08			44.78			40.45			37.45			47.08
Low		38.93			38.93			20.99			28.20			20.99
(in millions)	Fiscal 2007 - Quarters Ended
	Aug. 27			Nov. 26			Feb. 25			May 27 (1)			Total
Sales	$	1,359.6		$	1,298.1		$	1,449.5		$	1,459.8		$	5,567.1
Earnings before income taxes		139.4			96.6			157.4			137.3			530.8
Earnings from continuing operations		93.3			67.6			117.7			98.5			377.1
Losses from discontinued operations, net of tax		(4.8	)		(5.9	)		(11.3	)		(153.6	)		(175.7	)
Net earnings (loss)		88.5			61.7			106.4			(55.1	)		201.4
Basic net earnings per share:
Earnings from continuing operations		0.64			0.46			0.82			0.70			2.63
Losses from discontinued operations		(0.03	)		(0.04	)		(0.08	)		(1.09	)		(1.23	)
Net earnings (loss)		0.61			0.42			0.74			(0.39	)		1.40
Diluted net earnings per share:
Earnings from continuing operations		0.62			0.45			0.79			0.67			2.53
Losses from discontinued operations		(0.03	)		(0.04	)		(0.07	)		(1.05	)		(1.18	)
Net earnings (loss)		0.59			0.41			0.72			(0.38	)		1.35
Dividends paid per share		—			0.23			—			0.23			0.46
Stock price:
High		39.40			44.19			42.71			45.88			45.88
Low		33.29			35.24			38.32			39.08			33.29

(1) During the fourth quarter of fiscal 2007, we closed 54 Smokey Bones, two Rocky River Grillhouse and nine Bahama Breeze restaurants resulting in impairment costs and closure costs of in the fourth quarter of fiscal 2007 of $229.5 million and $16.4 million, respectively. The amounts are included in losses from discontinued operations, net of tax, in the table above.

55

Five-Year Financial Summary

Financial Review 2008

(In millions, except per share data)	Fiscal Year Ended
	May 25, 2008			May 27, 2007			May 28, 2006			May 29, 2005			May 30, 2004 (2)
Operating Results (1)
Sales	$	6,626.5		$	5,567.1		$	5,353.6		$	4,977.6		$	4,794.7
Costs and expenses:
Cost of sales:
Food and beverage		1,996.2			1,616.1			1,570.0			1,490.3			1,456.9
Restaurant labor		2,124.7			1,808.2			1,722.1			1,594.2			1,528.6
Restaurant expenses		1,017.8			834.5			806.4			742.8			728.4
Total cost of sales, excluding restaurant depreciation and amortization (3)	$	5,138.7		$	4,258.8		$	4,098.5		$	3,827.3		$	3,713.9
Selling, general and administrative		641.7			537.0			506.1			469.3			480.3	(4)
Depreciation and amortization		245.7			200.4			197.0			194.7			196.9
Interest, net		85.7			40.1			43.9			44.7			44.9
Total costs and expenses	$	6,111.8		$	5,036.3		$	4,845.5		$	4,536.0		$	4,436.0
Earnings before income taxes		514.7			530.8			508.1			441.6			358.7
Income taxes		(145.2	)		(153.7	)		(156.3	)		(141.7	)		(116.2	)
Earnings from continuing operations	$	369.5		$	377.1		$	351.8		$	299.9		$	242.5
Earnings (losses) from discontinued operations, net of tax benefit of $(3.0), $112.9, $12.1, $8.3 and $10.6		7.7			(175.7	)		(13.6	)		(9.3	)		(15.3	)
Net earnings	$	377.2		$	201.4		$	338.2		$	290.6		$	227.2
Basic net earnings per share:
Earnings from continuing operations	$	2.63		$	2.63		$	2.35		$	1.91		$	1.48
Earnings (losses) from discontinued operations	$	0.06			($1.23	)		($0.09	)		($0.06	)		($0.09	)
Net Earnings	$	2.69		$	1.40		$	2.26		$	1.85		$	1.39
Diluted net earnings per share:
Earnings from continuing operations	$	2.55		$	2.53		$	2.24		$	1.84		$	1.43
Earnings (losses) from discontinued operations	$	0.05			($1.18	)		($0.08	)		($0.06	)		($0.09	)
Net Earnings	$	2.60		$	1.35		$	2.16		$	1.78		$	1.34
Average number of common shares outstanding:
Basic		140.4			143.4			149.7			156.7			163.5
Diluted		145.1			148.8			156.9			163.4			169.7
Financial Position
Total assets	$	4,730.6		$	2,880.8		$	3,010.2		$	2,937.8		$	2,780.3
Land, buildings and equipment, net		3,066.0			2,184.4			2,446.0			2,351.5			2,250.6
Working capital (deficit)		(668.3	)		(529.0	)		(648.5	)		(637.3	)		(337.2	)
Long-term debt, less current portion		1,634.3			491.6			494.7			350.3			653.3
Stockholders’ equity		1,409.1			1,094.5			1,229.8			1,273.0			1,175.3
Stockholders’ equity per outstanding share		10.03			7.74			8.37			8.25			7.42

56

Five-Year Financial Summary

(continued)

	Fiscal Year Ended
	May 25, 2008		May 27, 2007		May 28, 2006		May 29, 2005		May 30, 2004 (2)
Other Statistics
Cash flows from operations (1)	$	766.8	$	569.8	$	699.1	$	550.0	$	492.0
Capital expenditures (1) (5)		1,627.3		345.2		273.5		210.4		269.3
Dividends paid		100.9		65.7		59.2		12.5		13.0
Dividends paid per share		0.72		0.46		0.40		0.08		0.08
Advertising expense (1)		257.8		230.0		223.0		206.5		208.8
Stock price:
High		47.08		45.88		42.75		33.11		25.60
Low		20.99		33.29		28.80		19.30		17.80
Close	$	31.74	$	45.32	$	36.51	$	32.80	$	22.50
Number of employees		178,200		156,500		157,300		150,100		141,300
Number of restaurants		1,702		1,397		1,427		1,381		1,325

(1) Consistent with our consolidated financial statements, information has been presented on a continuing operations basis. Accordingly, the activities related to Smokey Bones, Rocky River Grillhouse and the nine Bahama Breeze restaurants closed in fiscal 2007 have been excluded.

(2) Fiscal year 2004 consisted of 53 weeks while all other fiscal years presented on this summary consisted of 52 weeks.

(3) Excludes restaurant depreciation and amortization of $230.0, $186.4, $181.1, $180.2 and $182.6, respectively.

(4) Asset impairment charges of $28.1 are included in selling, general and administrative expenses. These charges relate primarily to 10 Bahama Breeze restaurants that were impaired during fiscal 2004.

(5) Fiscal 2008 includes net cash used in the acquisition of RARE Hospitality International, Inc. of $1.20 billion in addition to $429.2 million of capital expenditures related principally to building new restaurants and replacing old restaurants and equipment.

57

EX-21

EXHIBIT 21

SUBSIDIARIES OF DARDEN RESTAURANTS, INC.

As of May 25, 2008, 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, Smokey Bones, and Seasons 52.

Rare Hospitality International, Inc., a Georgia corporation, doing business as LongHorn Steakhouse and The Capital Grille.

Darden SW, LLC, a Florida limited liability company, doing business as Red Lobster and Olive Garden.

We also had other direct and indirect subsidiaries as of May 25, 2008. None of these subsidiaries would constitute a “significant subsidiary” as defined in Regulation S-X, Rule 1-02(w).

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Darden Restaurants, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 33-93854, 333-413504, 333-127046 and 333-146582) and on Form S-8 (Nos. 333-57410, 333-91579, 333-69037, 333-105056, 333-106278, 333-124363, 333-122560, 333-141651, 333-148260 and 333-146464) of Darden Restaurants, Inc. of our reports dated July 17, 2008, with respect to the consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 25, 2008 and May 28, 2007, and the related consolidated statements of earnings, changes in stockholders’ equity and accumulated other comprehensive income (loss), and cash flows for each of the years in the three-year period ended May 25, 2008 and the effectiveness of internal control over financial reporting as of May 25, 2008, which reports are included in the 2008 Annual Report to Shareholders included as an exhibit to this annual report on Form 10-K of Darden Restaurants, Inc.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for uncertainty in income taxes in 2008 by adopting FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, and changed its method of accounting for share-based compensation by adopting Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and accounting for defined benefit pension and other postretirement plans by adopting Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, in 2007.

/s/ KPMG LLP

Orlando, Florida

July 17, 2008

Certified Public Accountants

EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Clarence Otis, Jr. and, C. Bradford Richmond 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 25, 2008 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.

IN WITNESS WHEREOF, this Power of Attorney has been signed on this 19th day of May, 2008, by the following persons.

By:	/s/ Leonard L. Berry	By:	/s/ Clarence Otis, Jr.
	Leonard L. Berry		Clarence Otis, Jr.
By:	/s/ Odie C. Donald	By:	/s/ Michael D. Rose
	Odie C. Donald		Michael D. Rose
By:	/s/ David H. Hughes	By:	/s/ Maria A. Sastre
	David H. Hughes		Maria A. Sastre
By:	/s/ Charles A. Ledsinger, Jr.	By:	/s/ Jack A. Smith
	Charles A. Ledsinger, Jr.		Jack A. Smith
By:	/s/ William M. Lewis, Jr.	By:	/s/ Rita P. Wilson
	William M. Lewis, Jr.		Rita P. Wilson
By:	/s/ Cornelius McGillicuddy, III	By:	/s/ C. Bradford Richmond
	Cornelius McGillicuddy, III		C. Bradford Richmond
By:	/s/ Andrew H. Madsen
	Andrew H. Madsen

EX-31.A

EXHIBIT 31(a)

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Clarence Otis, Jr., certify that:

1. I have reviewed this Annual Report on Form 10-K 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 this 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.

/s/ Clarence Otis, Jr.

Clarence Otis, Jr.

Chairman and Chief Executive Officer

July 17, 2008

EX-31.B

EXHIBIT 31(b)

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, C. Bradford Richmond, certify that:

1. I have reviewed this Annual Report on Form 10-K 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 this 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.

/s/ C. Bradford Richmond

C. Bradford Richmond

Senior Vice President and Chief Financial Officer

July 17, 2008

EX-32.A

EXHIBIT 32(a)

CERTIFICATION 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 25, 2008, as filed with the Securities and Exchange Commission (“Report”), I, Clarence Otis, Jr., Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §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.

Chairman and Chief Executive Officer

July 17, 2008

EX-32.B

EXHIBIT 32(b)

CERTIFICATION 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 25, 2008, as filed with the Securities and Exchange Commission (“Report”), I, C. Bradford Richmond , Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §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/ C. Bradford Richmond

C. Bradford Richmond

Senior Vice President and Chief Financial Officer

July 17, 2008