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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q/A
(Amendment No. 1)
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 29, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ..............to ........................
-----------------------
1-13666
Commission File Number
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DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3305930
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5900 Lake Ellenor Drive,
Orlando, Florida 32809
(Address of principal executive offices) (Zip Code)
407-245-4000
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[X] Yes [ ] No
--------------------
Number of shares of common stock outstanding as of October 1, 2004:
157,217,444 (excluding 109,111,360 shares held in our treasury).
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EXPLANATORY NOTE
As previously disclosed, following a December 2004 review of the accounting
adjustments cited in several recent Form 8-K filings by other restaurant
companies, and in consultation with our independent registered public accounting
firm, KPMG LLP, Darden Restaurants, Inc. ("we", "our" or the "Company")
determined that one of the adjustments in those filings relating to the
treatment of lease accounting and leasehold depreciation applied to us, and that
it was appropriate to adjust certain of our prior financial statements. As a
result, on December 15, 2004, our Board of Directors concluded that our
previously-filed financial statements for the fiscal years 1996 through 2004 and
for the first quarter of fiscal 2005 should be restated (the "Restatement").
Historically, when accounting for leases with renewal options, we recorded rent
expense on a straight-line basis over the initial non-cancelable lease term,
with the term commencing when actual rent payments began. We depreciate our
buildings, leasehold improvements and other long-lived assets on those
properties over a period that includes both the initial non-cancelable lease
term and all option periods provided for in the lease (or the useful life of the
assets if shorter). We previously believed that these longstanding accounting
treatments were appropriate under generally accepted accounting principles. We
now have restated our financial statements to recognize rent expense on a
straight-line basis over the expected lease term, including cancelable option
periods where failure to exercise such options would result in an economic
penalty. The lease term commences on the date when we become legally obligated
for the rent payments. These adjustments were not attributable to any material
non-compliance by us, as a result of any misconduct, with any financial
reporting requirements under the securities laws.
This Amendment No. 1 on Form 10-Q/A ("Form 10-Q/A") to our Quarterly Report
on Form 10-Q for the quarterly period ended August 29, 2004, initially filed
with the Securities and Exchange Commission (the "SEC") on October 7, 2004 (the
"Original Filing"), is being filed to reflect restatements of (i) our
consolidated balance sheets at August 29, 2004 and May 30, 2004 and (ii) our
consolidated statements of earnings, changes in stockholders' equity and
accumulated other comprehensive income (loss), and cash flows, for the quarters
ended August 29, 2004 and August 24, 2003, and the notes related thereto. For a
more detailed description of these restatements, see Note 2, "Restatement of
Financial Statements" to the accompanying consolidated financial statements and
the section entitled "Restatement" in Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in this Form 10-Q/A.
For the convenience of the reader, this Form 10-Q/A sets forth the Original
Filing in its entirety. However, this Form 10-Q/A only amends and restates Items
1, 2 and 4 of Part I and Exhibit 12 of Item 6 of Part II of the Original Filing,
in each case, solely as a result of, and to reflect, the Restatement, and no
other information in the Original Filing is amended hereby. The foregoing items
have not been updated to reflect other events occurring after the Original
Filing or to modify or update those disclosures affected by subsequent events.
In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original
Filing has been amended to contain currently-dated certifications from our Chief
Executive Officer and Chief Financial Officer, as required by Sections 302 and
906 of the Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive
Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits
31(a), 31(b), 32(a) and 32(b), respectively.
Except for the foregoing amended information, this Form 10-Q/A continues to
describe conditions as of the date of the Original Filing, and we have not
updated the disclosures contained herein to reflect events that occurred at a
later date. Other events occurring after the filing of the Original Filing or
other disclosures necessary to reflect subsequent events have been or will be
addressed in our Quarterly Report on Form 10-Q for the quarterly period ended
November 28, 2004 which is being filed concurrently with the filing of this Form
10-Q/A and any reports filed with the SEC subsequent to the date of this filing.
Concurrently with the filing of this Form 10-Q/A, we are filing (i) an
amendment on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year
ended May 30, 2004 (the "2004 10-K") to provide restatements of the financial
statements or financial data as of and for the periods included in the 2004 10-K
and (ii) a Quarterly Report on Form 10-Q for the quarterly period ended November
28, 2004. We have not amended and do not intend to amend our previously-filed
Annual Reports on Form 10-K other than the 2004 10-K or our Quarterly Reports on
Form 10-Q for the periods affected by the Restatement that ended prior to May
30, 2004. For this reason, the consolidated financial statements, auditors'
reports and related financial information for the affected periods contained in
such reports should no longer be relied upon.
1
DARDEN RESTAURANTS, INC.
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in
Stockholders' Equity and Accumulated
Other Comprehensive Income (Loss) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20
Item 4. Controls and Procedures 20
Part II - Other Information
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 21
Item 5. Other Information 22
Item 6. Exhibits 22
Signatures 23
Index to Exhibits 24
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Quarter Ended
--------------------------------------------------------------------------------------------------------------------
August 29, 2004 August 24, 2003
--------------------------------------------------------------------------------------------------------------------
(as restated) (as restated)
Sales........................................................ $1,278,644 $1,259,689
Costs and expenses:
Cost of sales:
Food and beverage....................................... 391,421 396,713
Restaurant labor........................................ 405,816 392,335
Restaurant expenses..................................... 195,017 192,829
----------- ----------
Total cost of sales, excluding restaurant depreciation
and amortization of $49,219 and $48,082, respectively. $ 992,254 $ 981,877
Selling, general, and administrative...................... 114,580 113,641
Depreciation and amortization............................. 52,760 51,553
Interest, net............................................. 10,964 10,641
----------- ----------
Total costs and expenses.............................. $ 1,170,558 $1,157,712
----------- ----------
Earnings before income taxes................................. 108,086 101,977
Income taxes................................................. (37,074) (34,626)
----------- ----------
Net earnings................................................. $ 71,012 $ 67,351
=========== ==========
Net earnings per share:
Basic..................................................... $ 0.45 $ 0.41
=========== ==========
Diluted................................................... $ 0.44 $ 0.40
=========== ==========
Average number of common shares outstanding:
Basic..................................................... 157,600 164,700
=========== ==========
Diluted................................................... 163,200 170,500
=========== ==========
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
--------------------------------------------------------------------------------------------------------------------
August 29, 2004 May 30, 2004
--------------------------------------------------------------------------------------------------------------------
(as restated) (as restated)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 38,603 $ 36,694
Receivables............................................... 25,522 30,258
Inventories............................................... 217,989 198,781
Prepaid expenses and other current assets................. 27,803 25,316
Deferred income taxes..................................... 56,745 55,258
------------ -----------
Total current assets.................................. $ 366,662 $ 346,307
Land, buildings, and equipment............................... 2,261,646 2,250,616
Other assets................................................. 181,123 183,425
------------ -----------
Total assets.......................................... $ 2,809,431 $ 2,780,348
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 164,698 $ 174,624
Short-term debt .......................................... 17,800 14,500
Accrued payroll........................................... 89,427 103,327
Accrued income taxes...................................... 78,088 48,753
Other accrued taxes....................................... 40,273 38,440
Unearned revenues......................................... 65,091 75,513
Other current liabilities................................. 233,401 228,324
------------ -----------
Total current liabilities............................. $ 688,778 $ 683,481
Long-term debt............................................... 652,672 653,349
Deferred income taxes........................................ 129,312 132,690
Deferred rent................................................ 124,940 122,879
Other liabilities............................................ 13,129 12,661
------------ -----------
Total liabilities..................................... $ 1,608,831 $ 1,605,060
------------ ----------
Stockholders' equity:
Common stock and surplus.................................. $ 1,605,563 $ 1,584,115
Retained earnings......................................... 1,198,665 1,127,653
Treasury stock............................................ (1,544,882) (1,483,768)
Accumulated other comprehensive income (loss)............. (10,764) (10,173)
Unearned compensation..................................... (47,190) (41,401)
Officer notes receivable.................................. (792) (1,138)
------------ -----------
Total stockholders' equity............................ $ 1,200,600 $ 1,175,288
------------ -----------
Total liabilities and stockholders' equity............ $ 2,809,431 $ 2,780,348
============ ===========
--------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the quarters ended August 29, 2004 and August 24, 2003
(In thousands)
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Other Officer Total
and Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income (Loss) Compensation Receivable Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at May 30, 2004 (as previously
reported).............................. $1,584,115 $1,197,921 $(1,483,768) $(9,959) $(41,401) $(1,138) $1,245,770
Restatement adjustments.................. -- (70,268) -- (214) -- -- (70,482)
------------------------------------------------------------------------------------------------------------------------------------
Balance at May 30, 2004 (as restated).... 1,584,115 1,127,653 (1,483,768) (10,173) (41,401) (1,138) 1,175,288
Comprehensive income:
Net earnings (as restated)............ -- 71,012 -- -- -- -- 71,012
Other comprehensive income (loss):
Foreign currency adjustment
(as restated)................... -- -- -- 904 -- -- 904
Change in fair value of derivatives,
net of tax of $1,139............. -- -- -- (1,495) -- -- (1,495)
------------
Total comprehensive income
(as restated)............... 70,421
Stock option exercises (964 shares) 7,923 -- 439 -- -- -- 8,362
Issuance of restricted stock (361 shares),
net of forfeiture adjustments........... 8,227 -- -- -- (8,227) -- --
Earned compensation...................... -- -- -- -- 1,688 -- 1,688
ESOP note receivable repayments.......... -- -- -- -- 750 -- 750
Income tax benefits credited to equity... 4,527 -- -- -- -- -- 4,527
Purchases of common stock for treasury
(2,923 shares)........................ -- -- (61,963) -- -- -- (61,963)
Issuance of treasury stock under
Employee Stock Purchase and other
plans (71 shares)..................... 771 -- 410 -- -- -- 1,181
Repayment of officer notes............... -- -- -- -- -- 346 346
------------------------------------------------------------------------------------------------------------------------------------
Balance at August 29, 2004 (as restated) $1,605,563 $1,198,665 $(1,544,882) $(10,764) $(47,190) $(792) $1,200,600
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Other Officer Total
And Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income (Loss) Compensation Receivable Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at May 25, 2003 (as
previously reported).......... $1,525,957 $ 979,443 $(1,254,293) $(10,489) $(42,848) $(1,579) $1,196,191
Restatement adjustments.................. -- (65,979) -- (157) -- -- (66,136)
------------------------------------------------------------------------------------------------------------------------------------
Balance at May 25, 2003 (as restated).... 1,525,957 913,464 (1,254,293) (10,646) (42,848) (1,579) 1,130,055
Comprehensive income:
Net earnings (as restated)............ -- 67,351 -- -- -- -- 67,351
Other comprehensive income (loss):
Foreign currency adjustment
(as restated)..................... -- -- -- (505) -- -- (505)
Change in fair value of derivatives,
net of tax of $44................ -- -- -- (545) -- -- (545)
-----------
Total comprehensive income
(as restated).................... 66,301
Stock option exercises (997 shares) 8,924 -- 444 -- -- -- 9,368
Issuance of restricted stock (392 shares),
net of forfeiture adjustments......... 7,559 -- 169 -- (7,728) -- --
Earned compensation...................... -- -- -- -- 1,010 -- 1,010
ESOP note receivable repayments.......... -- -- -- -- 1,285 -- 1,285
Income tax benefits credited to equity... 4,405 -- -- -- -- -- 4,405
Purchases of common stock for treasury
(1,423 shares)........................ -- -- (27,578) -- -- -- (27,578)
Issuance of treasury stock under
Employee Stock Purchase and other
plans (82 shares)...................... 737 -- 491 -- -- -- 1,228
Repayment of officer notes............... -- -- -- -- -- 303 303
------------------------------------------------------------------------------------------------------------------------------------
Balance at August 24, 2003 (as restated) $1,547,582 $980,815 $(1,280,767) $(11,696) $(48,281) $(1,276) $1,186,377
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Quarter Ended
--------------------------------------------------------------------------------------------------------------------
August 29, 2004 August 24, 2003
--------------------------------------------------------------------------------------------------------------------
(as restated) (as restated)
Cash flows--operating activities
Net earnings................................................. $ 71,012 $ 67,351
Adjustments to reconcile net earnings to cash flows:
Depreciation and amortization.............................. 52,760 51,553
Asset impairment (credit) charge, net...................... (5) 502
Amortization of unearned compensation and loan costs....... 2,551 1,844
Non-cash compensation expense.............................. 28 67
Change in current assets and liabilities................... (14,890) 22,325
Contribution to defined benefit pension plans and
postretirement plan.................................. (106) (56)
Loss (gain) on disposal of land, buildings, and equipment.. 154 (1,559)
Change in cash surrender value of trust owned life insurance 271 (2,000)
Deferred income taxes...................................... (3,726) 2,542
Change in deferred rent ................................... 2,061 1,917
Change in other liabilities ............................... 552 420
Income tax benefits credited to equity..................... 4,527 4,405
Other, net................................................. (2,332) (204)
------------ ------------
Net cash provided by operating activities................ $ 112,857 $ 149,107
------------ ------------
Cash flows--investing activities
Purchases of land, buildings, and equipment.................. (62,665) (86,673)
Increase in other assets..................................... (319) (391)
Proceeds from disposal of land, buildings, and
equipment ................................................. 1,184 2,898
------------- ------------
Net cash used in investing activities.................... $ (61,800) $ (84,166)
------------- ------------
Cash flows--financing activities
Proceeds from issuance of common stock....................... 9,515 10,529
Purchases of treasury stock.................................. (61,963) (27,578)
Increase in short-term debt.................................. 3,300 --
ESOP note receivable repayment............................... 750 1,285
Repayment of long-term debt.................................. (750) (1,285)
------------- ------------
Net cash used in financing activities.................... $ (49,148) $ (17,049)
------------- ------------
Increase in cash and cash equivalents........................... 1,909 47,892
Cash and cash equivalents - beginning of period................. 36,694 48,630
------------ -----------
Cash and cash equivalents - end of period....................... $ 38,603 96,522
============= ===========
Cash flow from changes in current assets and liabilities
Receivables.................................................. 4,736 (12,714)
Inventories.................................................. (19,208) (91)
Prepaid expenses and other current assets.................... (2,487) (7,532)
Accounts payable............................................. (9,926) 20,342
Accrued payroll.............................................. (13,900) (4,853)
Accrued income taxes......................................... 29,335 13,677
Other accrued taxes.......................................... 1,833 2,791
Unearned revenues........................................... (10,422) (6,011)
Other current liabilities.................................... 5,149 16,716
------------ -----------
Change in current assets and liabilities................. $ (14,890) $ 22,325
============= ===========
--------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 1. Background
The Company owns and operates casual dining restaurants in the United
States and Canada under the trade names Red Lobster(R), Olive Garden(R), Bahama
Breeze(R), Smokey Bones Barbeque & GrillSM, and Seasons 52SM. We have prepared
these consolidated financial statements pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). They do not include certain
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. However, in
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal recurring nature. Operating
results for the quarter ended August 29, 2004, are not necessarily indicative of
the results that may be expected for the fiscal year ending May 29, 2005.
These statements should be read in conjunction with the consolidated
financial statements and related notes to consolidated financial statements
included in our Annual Report on Form 10-K/A for the fiscal year ended May 30,
2004. The accounting policies used in preparing these consolidated financial
statements are the same as those described in our Form 10-K/A.
Note 2. Restatement of Financial Statements
This Note should be read in conjunction with Note 2, "Restatement of
Financial Statements" under Notes to Consolidated Financial Statements included
in Item 8, "Financial Statements and Supplementary Data" of our Annual Report on
Form 10-K/A for the fiscal year ended May 30, 2004.
Following a December 2004 review of our lease accounting and leasehold
depreciation policies, we determined that it was appropriate to adjust certain
of our prior financial statements. As a result, we have restated our
consolidated financial statements for the fiscal years 1996 through 2004 and for
the first quarter of fiscal 2005. Historically, when accounting for leases with
renewal options, we recorded rent expense on a straight-line basis over the
initial non-cancelable lease term, with the term commencing when actual rent
payments began. We depreciate our buildings, leasehold improvements and other
long-lived assets on those properties over a period that includes both the
initial non-cancelable lease term and all option periods provided for in the
lease (or the useful life of the assets if shorter). We previously believed that
these longstanding accounting treatments were appropriate under generally
accepted accounting principles. We now have restated our financial statements to
recognize rent expense on a straight-line basis over the expected lease term,
including cancelable option periods where failure to exercise such options would
result in an economic penalty. The lease term commences on the date when we
become legally obligated for the rent payments.
The cumulative effect of the Restatement through fiscal 2004 is an increase
in the deferred rent liability of $114,008 and a decrease in deferred income tax
liability of $43,526. As a result, retained earnings at the end of fiscal 2004
decreased by $70,268. Rent expense for fiscal years ended 2004, 2003 and 2002
and for the quarterly periods ended August 29, 2004 and August 24, 2003
increased by $7,222, $10,145, $7,874, $1,803 and $2,007, respectively. The
Restatement decreased reported diluted net earnings per share by $0.02, $0.04,
and $0.03 for the fiscal years ended 2004, 2003, and 2002, respectively, but had
no effect on reported diluted net earnings per share for the quarters ended
August 29, 2004 and August 24, 2003. The Restatement had no impact on our
previously reported cash flows, sales or same-restaurant sales or on our
compliance with any covenant under our credit facility or other debt
instruments.
The consolidated financial statements included in this Form 10-Q/A have
been restated to reflect the adjustments described above. The Restatement has
been set forth, for the periods presented, in Amendment No. 1 to our Annual
Report on Form 10-K/A for the fiscal year ended May 30, 2004 which we are filing
concurrently with this Form 10-Q/A.
7
The following is a summary of the impact of the Restatement on (i) our
consolidated balance sheets at August 29, 2004 and August 24, 2003 and (ii) our
consolidated statements of earnings for the quarters ended August 29, 2004 and
August 24, 2003. The impact of the Restatement on our consolidated balance sheet
as of May 30, 2004 is presented in our Annual Report on Form 10-K/A for the
fiscal year ended May 30, 2004. We have not presented a summary of the impact on
our consolidated statements of cash flows for any of the above-referenced
quarterly periods since the net impact for each such quarterly period is zero.
As Previously
August 29, 2004 Reported Adjustments As Restated
-------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet
Deferred income taxes $ 173,528 $ (44,216) $ 129,312
Deferred rent -- 124,940 124,940
Other liabilities 22,077 (8,948) 13,129
Total liabilities 1,537,055 71,776 1,608,831
Retained earnings 1,270,046 (71,381) 1,198,665
Accumulated other comprehensive income (loss) (10,369) (395) (10,764)
Total stockholders' equity 1,272,376 (71,776) 1,200,600
As Previously
August 24, 2003 Reported Adjustments As Restated
--------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet
Deferred income taxes $ 155,832 $ (41,358) $ 114,474
Deferred rent -- 117,213 117,213
Other liabilities 20,304 (8,575) 11,729
Total liabilities 1,515,237 67,280 1,582,517
Retained earnings 1,048,037 (67,222) 980,815
Accumulated other comprehensive income (loss) (11,638) (58) (11,696)
Total stockholders' equity 1,253,657 (67,280) 1,186,377
As Previously
Quarter ended August 29, 2004 Reported Adjustments As Restated
--------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Earnings
Restaurant expenses $ 193,214 $ 1,803 $ 195,017
Total cost of sales 990,451 1,803 992,254
Total costs and expenses 1,168,755 1,803 1,170,558
Earnings before income taxes 109,889 (1,803) 108,086
Income taxes 37,764 (690) 37,074
Net earnings 72,125 (1,113) 71,012
Basic net earnings per share 0.46 (0.01) 0.45
Diluted net earnings per share 0.44 -- 0.44
As Previously
Quarter ended August 24, 2003 Reported Adjustments As Restated
--------------------------------------------------------------------------------------------------------------------
Consolidated Statement of Earnings
Restaurant expenses $ 190,822 $ 2,007 $ 192,829
Total cost of sales 979,870 2,007 981,877
Total costs and expenses 1,155,705 2,007 1,157,712
Earnings before income taxes 103,984 (2,007) 101,977
Income taxes 35,390 (764) 34,626
Net earnings 68,594 (1,243) 67,351
Basic net earnings per share 0.42 (0.01) 0.41
Diluted net earnings per share 0.40 -- 0.40
In addition, certain amounts in Note 4 have been restated to reflect
the Restatement adjustments described above.
8
Note 3. Consolidated Statements of Cash Flows
During the quarter ended August 29, 2004, we paid $7,438 for interest (net
of amounts capitalized) and $6,700 for income taxes. During the quarter ended
August 24, 2003, we paid $7,193 for interest (net of amounts capitalized) and
$14,133 for income taxes.
Note 4. Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages the use of a fair-value method of
accounting for stock-based awards under which the fair value of stock options is
determined on the date of grant and expensed over the vesting period. As allowed
by SFAS No. 123, we have elected to account for our stock-based compensation
plans under an intrinsic value method that requires compensation expense to be
recorded only if, on the date of grant, the current market price of our common
stock exceeds the exercise price the employee must pay for the stock. Our policy
is to grant stock options at the fair market value of our underlying stock at
the date of grant. Accordingly, no compensation expense has 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. Had we determined compensation expense for our stock options based
on the fair value at the grant date as prescribed under SFAS No. 123, our net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:
Quarter Ended
--------------------------------------------------------------------------------------------------------------------
August 29, 2004 August 24, 2003
--------------------------------------------------------------------------------------------------------------------
(as restated) (as restated)
Net earnings, as reported $ 71,012 $ 67,351
Add: Stock-based compensation expense included
in reported net earnings, net of related
tax effects 1,060 662
Deduct: Total stock-based compensation expense
determined under fair value based method
for all awards, net of related tax effects (5,028) (4,658)
--------------------------------------------------
Pro forma $ 67,044 $ 63,355
==================================================
Basic net earnings per share
As reported $ 0.45 $ 0.41
Pro forma $ 0.43 $ 0.38
Diluted net earnings per share
As reported $ 0.44 $ 0.40
Pro forma $ 0.41 $ 0.37
====================================================================================================================
Note 5. Provision for Impaired Assets and Restaurant Closings
During fiscal 2004, we recorded a restructuring charge of $1,112 primarily
related to severance payments made to certain restaurant employees and exit
costs associated with the closing of six Bahama Breeze restaurants in accordance
with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". Below is a summary of the restructuring liability for the quarter
ended August 29, 2004:
Balance at Cash Balance at
May 30, 2004 Additions Payments August 29, 2004
---------------------------------------------------------------------------------------------------------------------
One-time termination benefits $ 49 $ -- $ (20) $ 29
Other exit costs 311 -- (274) 37
---------------------------------------------------------------------------------------------------------------------
$ 360 $ -- $ (294) $ 66
=====================================================================================================================
During the first quarter of fiscal 2005 and 2004, we recorded charges of
$33 and $1,184, respectively, for long-lived asset impairments resulting from
the decision to relocate and rebuild certain restaurants. These impairments were
measured based on the amount by which the carrying amount of the assets exceeded
their fair value. Fair value is generally determined based on appraisals or
sales prices of comparable assets. During the first quarter of fiscal 2005 and
2004, we also recorded gains of $38 and $682, respectively, related to assets
sold that were previously impaired. These amounts are included in selling,
general, and administrative expense.
9
Note 6. Net Earnings per Share
Outstanding stock options and restricted stock granted by us represent the
only dilutive effect reflected in diluted weighted average shares outstanding.
Options and restricted stock do not impact the numerator of the diluted net
earnings per share computation.
Options to purchase 6,330,991 and 3,952,422 shares of common stock were
excluded from the calculation of diluted net earnings per share for the quarters
ended August 29, 2004 and August 24, 2003, respectively, because their exercise
prices exceeded the average market price of common shares for the period.
Note 7. Stockholders' Equity
Pursuant to the authorization of our Board of Directors to repurchase up to
115,400,000 shares in accordance with applicable securities regulations, we
repurchased 2,922,798 shares of our common stock for $61,963 during the quarter
ended August 29, 2004, resulting in a cumulative repurchase of 112,164,482
shares as of August 29, 2004.
Note 8. Derivative Instruments and Hedging Activities
During the first quarter of fiscal 2005, we issued Darden stock units to
certain key employees. The Darden stock units were granted at a value equal to
the market price of our common stock at 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 and is
amortized over the vesting period. At August 29, 2004, we had 464,320 Darden
stock units outstanding. No Darden stock units were outstanding during fiscal
2004.
During the first quarter of fiscal 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 the first quarter of
fiscal 2005. 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. The equity forward contracts, which have a $3,904 notional
amount and can only be net settled in cash, will be used to hedge the
variability in cash flows associated with the unvested unrecognized Darden stock
units. 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 gain of $344
related to the equity forward contracts was recognized in accumulated other
comprehensive income (loss) at August 29, 2004. 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. A gain of $14 was recognized in earnings as a component of
restaurant labor during the quarter ended August 29, 2004.
During the first quarter of fiscal 2005, we entered into an interest rate
swap agreement ("swap") to hedge the risk of changes in interest rates on the
cost of a future issuance of fixed-rate debt. The swap, which has a $25,000
notional principal amount of indebtedness, will be used to hedge a portion of
the interest payments associated with a forecasted issuance of debt in fiscal
2006. As of August 29, 2004, we have swaps with a total notional principal
amount of indebtedness of $100,000 designated to hedge the forecasted issuance
of debt in fiscal 2006. To the extent the swaps are effective in offsetting the
variability of the hedged cash flows, changes in the fair value of the swaps are
not included in current earnings but are reported as accumulated other
comprehensive income (loss). The accumulated gain or loss at the swap settlement
date will be amortized into earnings as an adjustment to interest expense over
the same period in which the related interest costs on the new debt issuance are
recognized in earnings. A deferred loss of $1,332, net of tax, related to the
swaps was recognized in accumulated other comprehensive income (loss) at August
29, 2004. No amounts were recognized in earnings during the quarter ended August
29, 2004.
10
Note 9. Retirement Plans
Components of net periodic benefit cost are as follows:
Defined Benefit Plans Postretirement Benefit Plan
----------------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
August 29, August 24, August 29, August 24,
2004 2003 2004 2003
----------------------------------------------------------------------------------------------------------------------
Service cost $ 1,217 $ 1,144 $ 175 $ 150
Interest cost 1,828 1,769 251 230
Expected return on plan assets (3,210) (3,205) -- --
Amortization of unrecognized prior service cost (87) (87) -- 7
Recognized net actuarial loss 1,248 927 87 84
----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 996 $ 548 $ 513 $ 471
======================================================================================================================
Note 10. Commitments and Contingencies
We make trade commitments in the course of our normal operations. As of
August 29, 2004 and May 30, 2004, we were contingently liable for approximately
$78 and $242, respectively, under outstanding trade letters of credit issued in
connection with purchase commitments. These letters of credit have terms of two
months or less and are used to collateralize our obligations to third parties
for the purchase of inventories.
As collateral for performance on other contracts and as credit guarantees
to banks and insurers, we were contingently liable pursuant to guarantees of
subsidiary obligations under standby letters of credit. As of August 29, 2004
and May 30, 2004, we had $72,677 and $72,480, respectively, of standby letters
of credit related to workers' compensation and general liabilities accrued in
our consolidated financial statements. As of August 29, 2004 and May 30, 2004,
we also had $15,664 and $15,896, respectively, of standby letters of credit
related to contractual operating lease obligations and other payments. All
standby letters of credit are renewable annually. As of August 29, 2004 and May
30, 2004, we had other commercial commitments of $2,125.
As of August 29, 2004 and May 30, 2004, we had $4,147 and $4,346,
respectively, of guarantees associated with third party assignment obligations.
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 August 29, 2004 and May 30, 2004 amounted to $3,023
and $3,131, respectively. We did not accrue for the guarantees, as we believed
the likelihood of the third parties defaulting on the assignment agreements was
improbable. In the event of default by a third party, the indemnity and/or
default clauses in our assignment agreements govern our ability to pursue and
recover from 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 the assignment allows us to repossess the
building and personal property. The guarantees expire over their respective
lease terms, which range from fiscal 2005 through fiscal 2012.
In March 2003 and March 2002, three of our current and former hourly
restaurant employees filed two purported class action lawsuits against us in
California Superior Court of Orange County alleging violations of California
labor laws with respect to providing meal and rest breaks. The lawsuits seek
penalties under Department of Labor rules providing a one hundred dollar penalty
per violation per employee, plus attorney's fees on behalf of the plaintiffs and
other purported class members. Discovery is currently underway in these matters.
One of the cases was removed to our mandatory arbitration program, although the
Court retained the authority to permit a sample of class-wide discovery. The
other case remains pending in the California Superior Court of Orange County. In
September 2003, three former employees in Washington State filed a similar
purported class action in Washington State Superior Court in Spokane County
alleging violations of Washington labor laws with respect to providing rest
breaks. The Court stayed the action, and ordered the plaintiffs into our
mandatory arbitration program; the plaintiffs' motion for reconsideration was
not granted, and their motion for modification of the appellate decision is
pending. We intend to vigorously defend our position in all of these cases.
Although the outcome of the cases cannot be ascertained at this time, we do not
believe that the disposition of these cases, either individually or in the
aggregate, would have a material adverse effect on our financial position,
results of operations or liquidity.
11
We are subject to other private lawsuits, administrative proceedings and
claims that arise in the ordinary course of our business. These matters
typically involve claims from guests, employees and others related to
operational issues common to the restaurant industry. A number of these
lawsuits, proceedings and claims may exist at any given time. We do not believe
that the final disposition of the lawsuits and claims in which we are currently
involved will have a material adverse effect, either individually or in the
aggregate, on our financial position, results of operations or liquidity.
Note 11. Subsequent Events
On September 28, 2004, the Board of Directors declared a four cents per
share cash dividend to be paid on November 1, 2004 to all shareholders of record
as of the close of business on October 8, 2004. On September 28, 2004, the Board
also authorized us to repurchase an additional 22 million shares of our common
stock after the previous authorizations to repurchase an aggregate of
115,400,000 shares of our common stock have been exhausted.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion and analysis below for the Company should be read in
conjunction with (i) the financial statements and the notes to such financial
statements included elsewhere in this Form 10-Q/A and (ii) the financial
statements and the notes to such financial statements included in Item 8,
"Financial Statements and Supplementary Data" of our Annual Report on Form
10-K/A for the fiscal year ended May 30, 2004. All applicable disclosures in the
following discussion have been modified to reflect the Restatement as described
below.
RESTATEMENT
Following a December 2004 review of the accounting adjustments cited in
several recent Form 8-K filings by other restaurant companies, and in
consultation with our independent registered public accounting firm, KPMG LLP,
we determined that one of the adjustments in those filings relating to the
treatment of lease accounting and leasehold depreciation applied to us, and that
it was appropriate to adjust certain of our prior financial statements. As a
result, we have restated our consolidated financial statements for the fiscal
years 1996 through 2004 and for the first quarter of fiscal 2005. Historically,
when accounting for leases with renewal options, we recorded rent expense on a
straight-line basis over the initial non-cancelable lease term, with the term
commencing when actual rent payments began. We depreciate our buildings,
leasehold improvements and other long-lived assets on those properties over a
period that included both the initial non-cancelable lease term and all option
periods provided for in the lease (or the useful life of the assets if shorter).
We previously believed that these longstanding accounting treatments were
appropriate under generally accepted accounting principles. We now have restated
our financial statements to recognize rent expense on a straight-line basis over
the expected lease term, including cancelable option periods where failure to
exercise such options would result in an economic penalty. The lease term
commences on the date when we become legally obligated for the rent payments.
These adjustments were not attributable to any material non-compliance by us, as
a result of any misconduct, with any financial reporting requirements under the
securities laws. The Restatement is further discussed in "Explanatory Note" in
the forepart of this Form 10-Q/A and in Note 2, "Restatement of Financial
Statements" under Notes to Consolidated Financial Statements included in Item 1,
"Financial Statements" of this Form 10-Q/A.
The cumulative effect of the Restatement through fiscal 2004 is an increase
in the deferred rent liability of $114 million and a decrease in deferred income
tax liability of $44 million. As a result, retained earnings at the end of
fiscal 2004 decreased by $70 million. Rent expense for fiscal years ended 2004,
2003 and 2002 and for the quarterly periods ended August 29, 2004 and August 24,
2003 increased by $7 million, $10 million, $8 million, $2 million, and $2
million, respectively. The Restatement decreased reported diluted net earnings
per share by $0.02, $0.04, and $0.03 for the fiscal years ended 2004, 2003 and
2002, respectively, but had no effect on reported diluted net earnings per share
for the quarters ended August 29, 2004 and August 24, 2003. The Restatement had
no impact on our previously reported cash flows, sales or same-restaurant sales
or on our compliance with any covenant under our credit facility or other debt
instruments.
The consolidated financial statements included in this Form 10-Q/A have
been restated to reflect the adjustments described above. The Restatement has
been set forth, for the periods presented therein, in Amendment No. 1 to our
Annual Report on Form 10-K/A for the fiscal year ended May 30, 2004 which we are
filing concurrently with this Form 10-Q/A.
12
RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percent of
sales for the periods indicated. All information is derived from the
consolidated statements of earnings for the quarters ended August 29, 2004 and
August 24, 2003.
Quarter Ended
---------------------------------------------------------------------------------------------------------------------
August 29, 2004 August 24, 2003
---------------------------------------------------------------------------------------------------------------------
(as restated) (as restated)
Sales .......................................................... 100.0% 100.0%
Costs and expenses:
Cost of sales:
Food and beverage.......................................... 30.6 31.5
Restaurant labor........................................... 31.7 31.1
Restaurant expenses........................................ 15.3 15.3
------ ------
Total cost of sales, excluding restaurant
depreciation and amortization of 3.8%.................. 77.6% 77.9%
Selling, general, and administrative......................... 9.0 9.0
Depreciation and amortization................................ 4.1 4.1
Interest, net................................................ 0.8 0.9
------- -------
Total costs and expenses............................... 91.5% 91.9%
------- -------
Earnings before income taxes.................................... 8.5 8.1
Income taxes.................................................... (2.9) (2.8)
------- -------
Net earnings.................................................... 5.6% 5.3%
======= =======
---------------------------------------------------------------------------------------------------------------------
OVERVIEW OF OPERATIONS
Our sales were $1.28 billion for the first quarter of fiscal 2005 compared
to $1.26 billion for the first quarter of fiscal 2004, a 1.5 percent increase.
The increase was primarily driven by a net increase of 53 company-owned
restaurants since the first quarter of fiscal 2004 and increased U.S.
same-restaurant sales at Olive Garden, partially offset by decreased U.S.
same-restaurant sales at Red Lobster. For the first quarter of fiscal 2005, our
net earnings were $71 million compared to $67 million for the first quarter of
fiscal 2004, a 5.4 percent increase, and our diluted net earnings per share were
$0.44 compared to $0.40 for the first quarter of fiscal 2004, a 10 percent
increase.
Olive Garden reported its 40th consecutive quarter of U.S. same-restaurant
sales growth during the first quarter of fiscal 2005 with a 2.8 percent
increase. Although Red Lobster's U.S. same-restaurant sales decreased for the
fourth consecutive quarter, the decrease in the first quarter of fiscal 2005 was
significantly impacted by a shift in our promotional strategy. During the first
quarter of fiscal 2004, Red Lobster ran its Endless Crab promotion, which
resulted in strong guest counts and high check average, but lower profit margins
and low levels of guest satisfaction. During the first quarter of fiscal 2005,
Red Lobster focused on improving in-restaurant operations and delivering high
levels of guest satisfaction, which resulted in higher profit margins than the
first quarter of fiscal 2004. During the first quarter of fiscal 2005, Red
Lobster also launched its new LightHouse Selections menu, which highlights menu
items that are low in fat, carbohydrates, and calories. While the new menu did
not deliver the short-term guest counts that would be expected from a
limited-time-only promotion, the repurchase intent scores on the LightHouse menu
items were the highest Red Lobster has ever measured. Bahama Breeze continued to
deliver strong sales improvement, driven by the addition of lunch in most of the
restaurants and in spite of operating two fewer restaurants than in the first
quarter of fiscal 2004. Smokey Bones operated 32 more restaurants than the prior
year, including seven restaurants that were opened during the first quarter of
fiscal 2005. During fiscal 2005, Smokey Bones expects to open 30 to 40 new
restaurants.
13
SALES
Sales were $1.28 billion and $1.26 billion for the quarters ended August
29, 2004 and August 24, 2003, respectively. The 1.5 percent increase in sales
for the first quarter of fiscal 2005 was primarily due to a net increase of 53
company-owned restaurants since the first quarter of fiscal 2004 and increased
U.S. same-restaurant sales at Olive Garden, partially offset by decreased U.S.
same-restaurant sales at Red Lobster. Red Lobster sales of $595 million were 6.2
percent below last year's first quarter, which resulted primarily from a 7.6
percent decrease in U.S. same-restaurant sales, offset partially by revenue from
five net additional restaurants in operation versus last year. The decline in
U.S. same-restaurant sales resulted primarily from an 8.8 percent decrease in
same-restaurant guest counts offset only partially by a 1.2 percent increase in
average check. Olive Garden's sales of $581 million were 6.0 percent above last
year's first quarter, driven primarily by its 18 net new restaurants in
operation versus last year and a 2.8 percent increase in U.S. same-restaurant
sales. Olive Garden achieved its 40th consecutive quarter of U.S.
same-restaurant sales growth primarily as a result of a 2.1 percent increase in
average check and a 0.7 percent increase in same-restaurant guest counts.
COSTS AND EXPENSES
Total costs and expenses were $1.17 billion and $1.16 billion for the
quarters ended August 29, 2004 and August 24, 2003, respectively. As a percent
of sales, total costs and expenses decreased from 91.9 percent in the first
quarter of fiscal 2004 to 91.5 percent in the first quarter of fiscal 2005.
Food and beverage costs decreased $5 million, or 1.3 percent, from $397
million to $391 million in the first quarter of fiscal 2005 compared to the
first quarter of fiscal 2004. As a percent of sales, food and beverage costs
decreased in the first quarter of fiscal 2005 primarily as a result of a more
favorable promotional mix and reduced waste at Red Lobster and the
implementation of cost savings initiatives, which were partially offset by
increased lobster, crab and dairy costs at Red Lobster and dairy costs at Olive
Garden. During the first quarter of fiscal 2004, Red Lobster ran its Endless
Crab promotion, which resulted in higher than expected food costs as a
percentage of sales. Restaurant labor increased $13 million, or 3.4 percent,
from $392 million to $406 million in the first quarter of fiscal 2005 compared
to the first quarter of fiscal 2004. As a percent of sales, restaurant labor
increased primarily as a result of an increase in wage rates and reduced sales
leverage at Red Lobster, which was partially offset by increased sales leverage
at Olive Garden. Restaurant expenses (which include lease, property tax, credit
card, utility, workers' compensation, insurance, new restaurant pre-opening, and
other restaurant-level operating expenses) increased $2 million, or 1.1 percent,
from $193 million to $195 million in the first quarter of fiscal 2005 compared
to the first quarter of fiscal 2004. As a percent of sales, restaurant expenses
in the first quarter of fiscal 2005 were comparable to the first quarter of
fiscal 2004 primarily as a result of lower workers' compensation and general
liability expenses, which were offset by higher utility expenses. The decrease
in our workers' compensation and general liability expenses resulted primarily
from safety initiatives that we believe should continue to provide long-term
reductions in both the number and severity of claims.
Selling, general, and administrative expenses increased $1 million, or 0.8
percent, from $114 million to $115 million in the first quarter of fiscal 2005
compared to the first quarter of fiscal 2004. As a percent of sales, selling,
general, and administrative expenses for the first quarter of fiscal 2005 was
comparable to the first quarter of fiscal 2004 primarily as a result of reduced
sales leverage at Red Lobster and increased employee benefit costs, which were
offset by decreased marketing expenses at Olive Garden.
Depreciation and amortization expense increased $1 million, or 2.3 percent,
from $52 million to $53 million in the first quarter of fiscal 2005 compared to
the first quarter of fiscal 2004. As a percent of sales, depreciation and
amortization expense for the first quarter of fiscal 2005 was comparable to the
first quarter of fiscal 2004 primarily as a result of new restaurant and remodel
activity, which was offset by the favorable impact of higher sales volumes.
Net interest expense in the first quarter of fiscal 2005 was comparable to
the first quarter of fiscal 2004 reflecting lower capitalized interest in fiscal
2005 as a result of less new restaurant and remodel activity than in the first
quarter of fiscal 2004, which was offset by the favorable impact of higher sales
volumes.
14
INCOME TAXES
The effective income tax rate for the first quarter of fiscal 2005 was 34.3
percent compared to an effective income tax rate of 34.0 percent in the first
quarter of fiscal 2004. The rate increase in fiscal 2005 was primarily due to a
reduction in the amount of tax credits that we expect to receive for fiscal
2005.
NET EARNINGS AND NET EARNINGS PER SHARE
For the first quarter of fiscal 2005, our net earnings were $71 million
compared to $67 million for the first quarter of fiscal 2004, a 5.4 percent
increase, and our diluted net earnings per share were $0.44 compared to $0.40
for the first quarter of fiscal 2004, a 10 percent increase. At Red Lobster,
decreased sales and higher restaurant labor, selling, general, and
administrative, and depreciation expenses as a percent of sales more than offset
decreased food and beverage costs and restaurant expenses as a percentage of
sales. As a result, Red Lobster's operating profit decreased versus the first
quarter of 2004. At Olive Garden, increased sales and lower restaurant expenses
and selling, general, and administrative expenses as a percent of sales more
than offset increased labor costs as a percent of sales, resulting in record
first quarter operating profit for Olive Garden in fiscal 2005 and a
double-digit operating profit increase over the same period in fiscal 2004. The
increase in both our net earnings and diluted net earnings per share for the
first quarter of fiscal 2005 was primarily due to increased U.S. same-restaurant
sales at Olive Garden and decreases in our consolidated food and beverage costs
as a percent of sales more than offsetting increased restaurant labor as a
percentage of sales. Earnings results were negatively impacted by an increase in
the effective income tax rate, which was primarily a result of a reduction in
the amount of tax credits that we expect to receive for fiscal 2005.
SEASONALITY
Our sales volumes fluctuate seasonally. In fiscal 2004 and 2003, our sales
were highest in the spring, lowest in the fall, and comparable during winter and
summer. Holidays, severe weather and similar conditions may affect 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.
NUMBER OF RESTAURANTS
The following table details the number of restaurants open at the end of
the first quarter of fiscal 2005, compared with the number open at the end of
fiscal 2004 and the end of the first quarter of fiscal 2004.
--------------------------------------------------------------------------------------------------------------------
August 29, 2004 May 30, 2004 August 24, 2003
--------------------------------------------------------------------------------------------------------------------
Red Lobster - USA.................. 650 649 645
Red Lobster - Canada............... 31 31 31
------ ------ ------
Total......................... 681 680 676
------ ------ ------
Olive Garden - USA................. 539 537 521
Olive Garden - Canada.............. 6 6 6
------ ------- ------
Total......................... 545 543 527
------ ------- ------
Bahama Breeze...................... 32 32 34
Smokey Bones ...................... 76 69 44
Seasons 52......................... 1 1 1
------- ------- ------
Total......................... 1,335 1,325 1,282
------- ------- ------
--------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities provide us with a
significant source of liquidity. 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.
15
Our commercial paper program serves as our primary source of short-term
financing. As of August 29, 2004, $18 million was outstanding under the program.
To support our commercial paper program, we have a credit facility under a
Credit Agreement dated October 17, 2003, with a consortium of banks, including
Wachovia Bank, N.A., as administrative agent, under which we can borrow up to
$400 million. The credit facility allows us to borrow at interest rates based on
a spread over (i) LIBOR or (ii) a base rate that is 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 is determined by our debt rating. The credit
facility expires on October 17, 2008, and contains various restrictive
covenants, including a leverage test that requires us to maintain a ratio of
consolidated total debt to consolidated total capitalization of less than 0.55
to 1.00 and a limitation of $25 million on priority debt, subject to certain
exceptions. The credit facility does not, however, contain a prohibition on
borrowing in the event of a ratings downgrade or a material adverse change in
and of itself. None of these covenants is expected to limit our liquidity or
capital resources. As of August 29, 2004, we were in compliance with all
covenants under the Credit Agreement.
At August 29, 2004, our long-term debt consisted principally of: (1) $150
million of unsecured 8.375 percent senior notes due in September 2005, (2) $150
million of unsecured 6.375 percent notes due in February 2006, (3) $150 million
of unsecured 5.75 percent medium-term notes due in March 2007, (4) $75 million
of unsecured 7.45 percent medium-term notes due in April 2011, (5) $100 million
of unsecured 7.125 percent debentures due in February 2016, and (6) an
unsecured, variable rate $29 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 a shelf registration statement on
file with the SEC, we have the ability to issue an additional $125 million of
unsecured debt securities from time to time. The debt securities may bear
interest at either fixed or floating rates and have maturity dates of nine
months or more after issuance.
A summary of our contractual obligations and commercial commitments as of
August 29, 2004 is as follows (in thousands):
---------------------------------------------------------------------------------------------------------------------
Payments Due by Period
---------------------------------------------------------------------------------------------------------------------
Contractual Less than 1-3 3-5 After 5
Obligations Total 1 Year Years Years Years
---------------------------------------------------------------------------------------------------------------------
Short-term debt $ 17,800 $ 17,800 $ -- $ -- $ --
---------------------------------------------------------------------------------------------------------------------
Long-term debt (1) 653,653 -- 450,000 -- 203,653
---------------------------------------------------------------------------------------------------------------------
Operating leases 383,576 62,990 111,388 82,915 126,283
---------------------------------------------------------------------------------------------------------------------
Purchase obligations (2) 598,010 533,057 63,378 1,575 --
---------------------------------------------------------------------------------------------------------------------
Total contractual cash
obligations $ 1,653,039 $ 613,847 $ 624,766 $ 84,490 $ 329,936
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Amount of Commitment Expiration per Period
--------------------------------------------------------------------------------------------------------------------
Other Commercial Total Amounts Less than 1-3 3-5 Over 5
Commitments Committed 1 Year Years Years Years
--------------------------------------------------------------------------------------------------------------------
Trade letters of credit $ 78 $ 78 $ -- $ -- $ --
--------------------------------------------------------------------------------------------------------------------
Standby letters of
credit (3) 88,341 88,341 -- -- --
--------------------------------------------------------------------------------------------------------------------
Guarantees (4) 4,147 795 1,449 1,095 808
--------------------------------------------------------------------------------------------------------------------
Other 2,125 625 1,000 500 --
--------------------------------------------------------------------------------------------------------------------
Total commercial
commitments $ 94,691 $ 89,839 $ 2,449 $ 1,595 $ 808
--------------------------------------------------------------------------------------------------------------------
(1) Excludes issuance discount of $981.
(2) Includes commitments for food and beverage items and supplies, capital
projects, and other miscellaneous commitments.
(3) Includes letters of credit for $72,677 associated with workers'
compensation and general liabilities accrued in our consolidated financial
statements; also includes letters of credit for $7,335 associated with
lease payments included in contractual operating lease obligation payments
noted above.
16
(4) Consists solely of guarantees associated with properties that have been
assigned. We are not aware of any non-performance under these arrangements
that would result in our having to perform in accordance with the terms of
the guarantees.
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.
Our Board of Directors has authorized us to repurchase up to an aggregate
of 137.4 million shares of our common stock, after giving effect to the
additional 22.0 million shares that were authorized to be repurchased by our
Board on September 28, 2004. Net cash flows used by financing activities
included our repurchase of 2.9 million shares of our common stock for $62
million in the first quarter of fiscal 2005, compared to 1.4 million shares for
$28 million in the first quarter of fiscal 2004. As of August 29, 2004, we have
repurchased a total of 112.2 million shares of our common stock. The repurchased
common stock is reflected as a reduction of stockholders' equity.
Net cash flows used in investing activities included capital expenditures
incurred principally for building new restaurants, replacing equipment, and
remodeling existing restaurants. Capital expenditures were $63 million in the
first quarter of fiscal 2005, compared to $87 million in the first quarter of
fiscal 2004. The decreased expenditures in the first quarter of fiscal 2005
resulted primarily from decreased spending associated with building new
restaurants and remodels.
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 and borrowings available under our shelf registration statement for
unsecured debt securities and short-term commercial paper program will be
sufficient to finance our capital expenditures, stock repurchase program, and
other operating activities through fiscal 2005.
FINANCIAL CONDITION
Our current assets totaled $367 million at August 29, 2004, compared to
$346 million at May 30, 2004. The increase resulted primarily from the increase
in inventory of $19 million that was due to seasonality and opportunistic
product purchases.
Our current liabilities totaled $689 million at August 29, 2004, up from
$683 million at May 30, 2004. Accounts payable of $165 million at August 29,
2004, decreased from $175 million at May 30, 2004, principally due to the timing
and terms of inventory purchases, capital expenditures, and related payments.
Accrued payroll of $89 million at August 29, 2004, decreased from $103 million
at May 30, 2004, principally due to the payout of the fiscal 2004 incentive
compensation during the first quarter of fiscal 2005. Accrued income taxes of
$78 million at August 29, 2004, increased from $49 million at May 30, 2004,
principally due to the income taxes accrued for in the first quarter of fiscal
2005 and the timing of income tax payments. Unearned revenues of $65 million at
August 29, 2004, decreased from $76 million at May 30, 2004, principally due to
seasonal fluctuations in sales and redemptions of our gift cards.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. 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 (see Note 1, "Summary of Significant Accounting Policies" under Notes to
Consolidated Financial Statements included in Item 8, "Financial Statements and
Supplementary Data" of our Annual Report on Form 10-K/A for the fiscal year
ended May 30, 2004). Actual results could differ from those estimates.
Critical accounting policies are those that we believe are 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
17
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 10 years, also using the
straight-line method. Accelerated depreciation methods are generally used for
income tax purposes.
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, 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.
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 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.
Those 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, and
changes in usage or operating performance. 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.
In the fourth quarter of fiscal 2004, we recognized asset impairment charges of
$37 million ($22 million after-tax) for the closing of six Bahama Breeze
restaurants and the write-down of four other Bahama Breeze restaurants, one
Olive Garden restaurant, and one Red Lobster restaurant based on an evaluation
of expected cash flows.
Self-Insurance Accruals
We self-insure a significant portion of expected losses under our workers'
compensation, employee medical, and general liability programs. Accrued
liabilities have been recorded based on our estimates of the ultimate costs to
settle incurred claims, both reported and not yet reported.
Our accounting policies regarding self-insurance programs include our
judgments and independent actuarial assumptions regarding economic conditions,
the frequency or severity of claims and claim development patterns, and claim
reserve, management, and settlement practices. Unanticipated changes in these
factors may produce materially different amounts of reported expense under these
programs.
18
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.
Our estimates are based 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.
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 (the
"Exchange Act"). Words or phrases such as "believe," "plan," "will," "expect,"
"intend," "estimate," and "project," and similar expressions are intended to
identify forward-looking statements. All of these statements, and any other
statements in this report that are not historical facts, are forward-looking.
Examples of forward-looking statements include, but are not limited to,
projections regarding: our growth plans and the number and type of expected new
restaurant openings; the impact of litigation on our financial position; and the
expected date of our Chairman's retirement. 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 the following factors (each of which is discussed in greater
detail in Item 1, "Business" of our Annual Report on Form 10-K/A for the fiscal
year ended May 30, 2004):
o the highly competitive nature of the restaurant industry, especially
pricing, service, location, personnel, and type and quality of food;
o economic, market, and other conditions, including a protracted economic
slowdown or worsening economy, industry-wide cost pressures, public safety
conditions (including ongoing concerns about terrorism threats or the
continuing conflict in Iraq), weak consumer demand, changes in consumer
preferences, demographic trends, weather conditions, construction costs,
and the cost and availability of borrowed funds;
o the price and availability of food, labor, utilities, insurance and media,
and other costs, including seafood costs, employee benefits, workers'
compensation insurance, litigation costs, and the general impact of
inflation;
o unfavorable publicity relating to food safety or other concerns, including
litigation alleging poor food quality, food-borne illness, or personal
injury;
o the availability of desirable restaurant locations;
o government regulations and litigation relating to federal and state labor
laws, zoning, land use, environmental matters, and liquor licenses; and
o growth plans, including real estate development and construction
activities, the issuance and renewal of licenses and permits for restaurant
development, and the availability of funds to finance growth.
19
Item 3. 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, and commodity prices. To manage
this exposure, we periodically enter into interest rate, foreign currency
exchange, and commodity instruments for other than trading purposes.
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.
As of August 29, 2004, our potential losses in future net earnings resulting
from changes in foreign currency exchange rate instruments, commodity
instruments, and floating rate debt interest rate exposures were approximately
$5 million over a period of one year (including the impact of the interest rate
swap agreements discussed in Note 7 to the Consolidated Financial Statements).
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 $20 million. The
fair value of our long-term fixed rate debt during the first quarter of fiscal
2005 averaged $673 million, with a high of $677 million and a low of $666
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.
Item 4. 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 Exchange Act) as
of August 29, 2004, 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 August 29,
2004.
Subsequent to the period covered by this report, and following a December
2004 review of the accounting adjustments cited in several recent Form 8-K
filings by other restaurant companies, and in consultation with our independent
registered public accounting firm, KPMG, LLP, we determined that one of the
adjustments in those filings relating to the treatment of lease accounting and
leasehold depreciation applied to us, and that it was appropriate to adjust
certain of our prior financial statements. As a result, on December 15, 2004,
our Board of Directors concluded that our previously-filed financial statements
for the fiscal years 1996 through 2004 and for the first quarter of fiscal 2005
should be restated. The Restatement is further discussed in "Explanatory Note"
in the forepart of this Form 10-Q/A, in the section entitled "Restatement" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 2 of this Form 10-Q/A and in Note 2, "Restatement of
Financial Statements" under Notes to Consolidated Financial Statements included
in Item 1, "Financial Statements" of this Form 10-Q/A. In connection with the
Restatement and with the filing of this Form 10-Q/A, under the supervision and
with the participation of our management, including our Chief Executive Officer
and our Chief Financial Officer, we re-evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of August 29, 2004,
the end of the period covered by this Form 10-Q/A. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of August 29, 2004.
During the fiscal quarter ended August 29, 2004, 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.
20
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In March 2003 and March 2002, three of our current and former hourly
restaurant employees filed two purported class action lawsuits against us in
California Superior Court of Orange County alleging violations of California
labor laws with respect to providing meal and rest breaks. The lawsuits seek
penalties under Department of Labor rules providing a one hundred dollar penalty
per violation per employee, plus attorney's fees on behalf of the plaintiffs and
other purported class members. Discovery is currently underway in these matters.
One of the cases was removed to our mandatory arbitration program, although the
Court retained the authority to permit a sample of class-wide discovery. The
other case remains pending in California Superior Court of Orange County. In
September 2003, three former employees in Washington State filed a similar
purported class action in Washington State Superior Court in Spokane County
alleging violations of Washington labor laws with respect to providing rest
breaks. The Court stayed the action, and ordered the plaintiffs into our
mandatory arbitration program; the plaintiffs' motion for reconsideration was
not granted, and their motion for modification of the appellate decision is
pending. We intend to vigorously defend our position in all of these cases.
Although the outcome of the cases cannot be ascertained at this time, we do not
believe that the disposition of these cases, either individually or in the
aggregate, would have a material adverse effect on our financial position,
results of operations or liquidity.
We are subject to other private lawsuits, administrative proceedings and
claims that arise in the ordinary course of our business. These matters
typically involve claims from guests, employees and others related to
operational issues common to the restaurant industry. A number of these
lawsuits, proceedings and claims may exist at any given time. We could be
affected by adverse publicity resulting from the allegations comprising a claim,
regardless of whether the allegations are valid or whether we are ultimately
found liable. From time to time, we also are involved in lawsuits related to
infringement of, or challenges to, our trademarks. We do not believe that the
final disposition of the lawsuits and claims in which we are currently involved,
either individually or in the aggregate, will have a material adverse effect on
our financial position, results of operations or liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides information concerning our repurchase of shares of
our common stock during the first quarter of fiscal 2005. Since commencing
repurchases in December 1995, we have repurchased a total of 112,164,482 shares
under authorizations from our Board of Directors to repurchase an aggregate of
137,400,000 shares, including an additional 22 million shares that were
authorized by our Board of Directors to be repurchased on September 28, 2004.
---------------------------------------------------------------------------------------------------------------------
Total Number of Maximum Number of
Shares Purchased as Shares that
Total Number Average Part of Publicly May Yet be Purchased
of Shares Purchased Price Paid Announced Plans or Under the Plans or
Period (1) per Share Programs Programs (2)
---------------------------------------------------------------------------------------------------------------------
May 31, 2004 through July 4,
2004 316,172 $20.63 316,172 5,842,144
---------------------------------------------------------------------------------------------------------------------
July 5, 2004 through
August 1, 2004 1,906,537 $21.43 1,906,537 3,935,607
---------------------------------------------------------------------------------------------------------------------
August 2, 2004 through
August 29, 2004 700,089 $20.82 700,089 3,235,518
---------------------------------------------------------------------------------------------------------------------
Total 2,922,798 $21.20 2,922,798 3,235,518
---------------------------------------------------------------------------------------------------------------------
(1) All of the shares purchased during the first quarter of fiscal 2005 were
purchased as part of our repurchase program. The authority for our
repurchase program was increased to an aggregate of 115.4 million shares by
our Board on September 18, 2002, and announced publicly in a press release
that same day, and was most recently increased by 22 million shares to an
aggregate of 137.4 million shares by our Board of Directors on September
28, 2004, and announced publicly in a press release issued that same day.
There is no expiration date for our program. The number of shares purchased
includes shares withheld for taxes on vesting of restricted stock, and
shares delivered or deemed to be delivered to us on tender of stock in
payment for the
21
exercise price of options. These shares are included as part of our
repurchase program and deplete the repurchase authority granted by our
Board. The number of shares purchased excludes shares we reacquired
pursuant to tax withholding on option exercises or forfeiture of restricted
stock.
(2) Repurchases are subject to prevailing market prices, may be made in open
market or private transactions, and may occur or be discontinued at any
time. There can be no assurance that we will repurchase any shares. The
figures in this column exclude the additional 22 million shares that were
authorized to be repurchased by our Board on September 28, 2004.
Item 5. Other Information
On September 28, 2004, our Board of Directors declared a regular
semi-annual cash dividend of four cents per share on our outstanding common
stock. The dividend is payable on November 1, 2004, to shareholders of record as
of the close of business on October 8, 2004. On September 28, 2004, the Board
also authorized us to repurchase an additional 22 million shares of our common
stock after the prior authorizations to repurchase an aggregate of 115,400,000
shares of our common stock have been exhausted.
We entered into a letter agreement dated October 7, 2004, with Joe R. Lee,
our Chairman and Chief Executive Officer, providing that from the expected date
of his retirement as our Chairman on November 29, 2005 until November 28, 2007,
he will be a consultant to us, performing such duties as we may request,
including consultation on matters on which he worked during his employment with
us, or other matters affecting us and the restaurant industry. He may also
represent us in restaurant industry associations and at related events. For
these services, Mr. Lee will be paid a fee of $300,000 per year, will be
reimbursed for reasonable travel and related expenses, and will be provided
office space and secretarial support. Mr. Lee will not be eligible for employee
benefits beyond those available to him as a retiree. Under the letter agreement,
Mr. Lee also has agreed to keep confidential any of our proprietary information,
not to compete with us or become an employee, director or owner of any other
casual dining restaurant company anywhere in the United States, and not to
employ, solicit or offer to employ any of our directors, officers or employees
during the term of his consulting arrangement.
Item 6. Exhibits
Exhibit 10(a)+ Letter Agreement dated October 7, 2004, between Joe
Lee and Darden Restaurants, Inc.
Exhibit 10(b)+ Form of Stock Option Award Agreement under the Darden
Restaurants, Inc. 2002 Stock Incentive Plan.
Exhibit 10(c)+ Form of Restricted Stock Award Agreement under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan.
Exhibit 10(d)+ Form of Restricted Stock Unit Award Agreement (U.S.)
under the Darden Restaurants, Inc. 2002 Stock
Incentive Plan.
Exhibit 12ss. Computation of Ratio of Consolidated Earnings to
Fixed Charges.
Exhibit 31(a)ss. Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31(b)ss. Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32(a)ss. Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32(b)ss. Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
+ Previously filed with original Form 10-Q for the quarterly period ended August
29, 2004.
ss. Filed herewith.
22
SIGNATURES
Pursuant to the requirements 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.
DARDEN RESTAURANTS, INC.
Dated: January 6, 2005 By: /s/ Paula J. Shives
------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary
Dated: January 6, 2005 By: /s/ Linda J. Dimopoulos
------------------------------
Linda J. Dimopoulos
Senior Vice President and
Chief Financial Officer
(Principal financial officer)
23
INDEX TO EXHIBITS
Exhibit
Number Exhibit Title
10(a)+ Letter Agreement dated October 7, 2004, between Joe Lee and
Darden Restaurants, Inc.
10(b)+ Form of Stock Option Award Agreement under the Darden
Restaurants, Inc. 2002 Stock Incentive Plan.
10(c)+ Form of Restricted Stock Award Agreement under the Darden
Restaurants, Inc. 2002 Stock Incentive Plan.
10(d)+ Form of Restricted Stock Unit Award Agreement (U.S.) under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan.
12ss. Computation of Ratio of Consolidated Earnings to Fixed Charges.
31(a)ss. Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31(b)ss. Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32(a)ss. Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32(b)ss. Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
+ Previously filed with original Form 10-Q for the quarterly period ended August
29, 2004.
ss. Filed herewith.
24