UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
FORM 10-K
-----------------------
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 29, 2005
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___ Commission
File Number: 1-13666
DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3305930
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5900 Lake Ellenor Drive 32809
Orlando, Florida (Zip Code)
(Address of principal executive offices)
(407) 245-4000
(Registrant'stelephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
--------------------- -----------------------
Common Stock, without par value New York Stock Exchange
and Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Aggregate market value of Common Stock held by non-affiliates of the
Registrant, based on the closing price of $27.41 per share as reported on the
New York Stock Exchange on November 28, 2004: $4,342,876,554.
Number of shares of Common Stock outstanding as of July 1, 2005:
154,403,570 (excluding 117,030,318 shares held in the Company's treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders on September 21, 2005, to be filed with the Securities and Exchange
Commission no later than 120 days after May 29, 2005, are incorporated by
reference into Part III, and portions of the Registrant's Annual Report to
Shareholders for the fiscal year ended May 29, 2005 are incorporated by
reference into Parts I and II of this Report.
DARDEN RESTAURANTS, INC.
FORM 10-K
FISCAL YEAR ENDED MAY 29, 2005
TABLE OF CONTENTS
PART I Page
- ------ ----
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 15
Item 3. Legal Proceedings............................................... 15
Item 4. Submission of Matters to a Vote of Security Holders............. 16
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
MattersAnd Issuer Purchases of Equity Securities................ 16
Item 6. Selected Financial Data......................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 17
Item 8. Financial Statements and Supplementary Data..................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure........................................ 18
Item 9A. Controls and Procedures......................................... 18
Item 9B. Other Information............................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 18
Item 11. Executive Compensation.......................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management andRelated Stockholder Matters....................... 19
Item 13. Certain Relationships and Related Transactions.................. 20
Item 14. Principal Accountant Fees and Services.......................... 20
PART IV
Item 15. Exhibits and Financial Statement Schedules...................... 21
Signatures ................................................................ 22
PART I
Item 1. BUSINESS
Introduction
Darden Restaurants, Inc. is the largest publicly held casual dining
restaurant company in the world,1 and served over 300 million meals during
fiscal 2005. As of May 29, 2005, we operated 1,381 restaurants in the United
States and Canada. In the United States, we operated 1,344 restaurants in 49
states (the exception being Alaska), including 648 Red Lobster(R), 557 Olive
Garden(R), 32 Bahama Breeze(R), 104 Smokey Bones Barbeque & Grill (R) and three
Seasons 52(R) restaurants. In Canada, we operated 37 restaurants, including 31
Red Lobster and six Olive Garden restaurants. We own and operate all of our
restaurants in the United States and Canada, with no franchising. Of our 1,381
restaurants open on May 29, 2005, 838 were located on owned sites and 543 were
located on leased sites. In Japan, as of May 29, 2005, we licensed 37 Red
Lobster restaurants to an unaffiliated Japanese corporation that operates the
restaurants under an Area Development and Franchise Agreement.
Darden Restaurants, Inc. is a Florida corporation incorporated in March
1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI,
Inc. and our other subsidiaries own the operating assets of the restaurants.
GMRI, Inc. was originally incorporated in March 1968 as Red Lobster Inns of
America, Inc. Our principal executive offices and restaurant support center are
located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407)
245-4000. Our corporate website address is www.darden.com. We make our reports
on Forms 10-K, 10-Q and 8-K, and Section 16 reports on Forms 3, 4 and 5, and all
amendments to those reports available free of charge on our website the same day
as the reports are filed with or furnished to the Securities and Exchange
Commission. Information on our website is not deemed to be incorporated by
reference into this Form 10-K. Unless the context indicates otherwise, all
references to "Darden," "we", "our" or "us" include Darden Restaurants, Inc.,
GMRI, Inc. and our respective subsidiaries.
We have a 52/53 week fiscal year ending on the last Sunday in May. Our 2005
fiscal year, which ended on May 29, 2005, and our 2003 fiscal year, which ended
on May 25, 2003, each had 52 weeks. Our 2004 fiscal year, which ended on May 30,
2004, had 53 weeks.
The following description of our business should be read in conjunction
with the information in our Management's Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference in Item 7 of this
Form 10-K and our consolidated financial statements incorporated by reference in
Item 8 of this Form 10-K.
Background
We opened our first restaurant, a Red Lobster, in Lakeland, Florida in
1968. Red Lobster was founded by William B. Darden, for whom we are named. We
were acquired by General Mills, Inc. in 1970. In May 1995, we became a separate
publicly held company when General Mills distributed all outstanding Darden
stock to General Mills' stockholders.
The number of Red Lobster and Olive Garden restaurants open at the end of
fiscal 2005 decreased by one and increased by 20, respectively, as compared to
the end of fiscal 2004. Red Lobster has grown from six restaurants in operation
at the end of fiscal 1970 to 679 restaurants in North America by the end of
fiscal 2005. Olive Garden, an internally developed concept, opened its first
restaurant in Orlando, Florida in fiscal 1983, and by the end of fiscal 2005 had
expanded to 563 restaurants in North America.
Bahama Breeze is an internally developed concept with a Caribbean theme. In
fiscal 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At
the end of fiscal 2005, there were 32 Bahama Breeze restaurants.
- -----------------------------
1 Source: Nation's Restaurant News, "Special Report: Top 100," June 27, 2005
(based on U.S. revenues from company-owned restaurants).
1
Smokey Bones is also an internally developed concept featuring barbeque and
other grilled favorites served in an inviting mountain-lodge setting that
features televised sports. The first restaurant was opened in fiscal 2000 in
Orlando, Florida. At the end of fiscal 2005, there were 104 Smokey Bones
restaurants.
In February 2003, we opened a new test restaurant in Orlando, Florida
called Seasons 52. It is a casually sophisticated fresh grill and wine bar with
seasonally inspired menus offering fresh ingredients to create great tasting,
nutritionally balanced meals that are lower in calories than comparable
restaurant meals. At the end of fiscal 2005, there were three Seasons 52
restaurants.
The table below shows our growth and lists the number of restaurants
operated by Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons
52 as of the end of each fiscal year since 1970. The final column in the table
lists our total sales for the years indicated.
Company-Operated Restaurants Open at Fiscal Year End
Fiscal Red Olive Bahama Smokey Seasons Total Total Company Sales
Year Lobster Garden Breeze Bones 52 Restaurants (1) ($ in Millions) (2)(3)
---- ------- ------- ------ ----- -- --------------- ----------------------
1970 6 6 3.5
1971 24 24 9.1
1972 47 47 27.1
1973 70 70 48.0
1974 97 97 72.6
1975 137 137 108.5
1976 174 174 174.1
1977 210 210 229.2
1978 236 236 291.4
1979 244 244 337.5
1980 260 260 397.6
1981 291 291 528.4
1982 328 328 614.3
1983 360 1 361 718.5
1984 368 2 370 782.3
1985 372 4 376 842.2
1986 401 14 415 917.3
1987 433 52 485 1,097.7
1988 443 92 535 1,300.8
1989 490 145 635 1,621.5
1990 521 208 729 1,927.7
1991 568 272 840 2,212.3
1992 619 341 960 2,542.0
1993 638 400 1,038 2,737.0
1994 675 458 1,133 2,963.0
1995 715 477 1,192 3,163.3
1996 729 487 1 1,217 3,191.8
1997 703 477 2 1,182 3,171.8
1998 682 466 3 1,151 3,261.6
1999 669 464 6 1,139 3,432.4
2000 654 469 14 2 1,139 3,675.5
2001 661 477 21 9 1,168 3,992.4
2002 667 496 29 19 1,211 4,366.9
2003 673 524 34 39 1 1,271 4,655.0
2004 680 543 32 69 1 1,325 5,003.4
2005 679 563 32 104 3 1,381 5,278.1
2
<FN>
(1) Includes only Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and
Seasons 52 restaurants. Does not include other restaurant concepts operated
by us in these years that are no longer owned or operated by us.
(2) Includes total sales from all of our operations, including sales from
restaurant concepts besides Red Lobster, Olive Garden, Bahama Breeze,
Smokey Bones and Seasons 52 that are no longer owned or operated by us.
Total company sales from 1970 through fiscal 1995 were included in the
consolidated operations of our former parent company, General Mills, Inc.,
prior to our spin-off as a separate publicly traded corporation in May
1995.
(3) Emerging Issues Task Force Issue 00-14 "Accounting for Certain Sales
Incentives" requires sales incentives to be classified as a reduction of
sales. We adopted Issue 00-14 in the fourth quarter of fiscal 2002. For
purposes of this presentation, sales incentives have been reclassified as a
reduction of sales for fiscal 1998 through 2005. Sales incentives for
fiscal years prior to 1998 have not been reclassified.
</FN>
Strategy
The restaurant industry is generally considered to be comprised of four
segments: quick service, midscale, casual dining and fine dining. The industry
is highly fragmented and includes many independent operators and small chains.
We believe that capable operators of strong multi-unit concepts have the
opportunity to increase their share of the casual dining segment. We plan to
grow by increasing the number of restaurants in each of our existing concepts
and by developing or acquiring additional concepts that can be expanded
profitably.
While we are a leader in the casual dining segment, we know we cannot be
successful without a clear sense of who we are. Our core purpose is "To nourish
and delight everyone we serve." This core purpose is supported by our core
values:
o Integrity and fairness;
o Respect and caring;
o Diversity;
o Always learning/always teaching; o Being "of service"; o Teamwork; and
o Excellence.
Our mission is to be "The best in casual dining, now and for generations."
We believe we can achieve this goal by continuing to build on our historical
strength as a multi-brand casual dining company, which is grounded in our
commitment to combining the following areas:
o A strong culture that inspires and engages our people with firmly held
values, a clear mission, and a core purpose to nourish and delight
everyone we serve;
o Competitively superior leadership;
o Brand management excellence;
o Restaurant operating excellence; and
o Restaurant support excellence.
Our strategic framework also includes two points that we believe separate
us from our competition. We are committed to:
o Being a multi-brand restaurant company that is bound together by
common operating practices and a unifying culture which serves to make
us stronger than the sum of our parts; and
o Obtaining insights from our guests and employees to create powerful,
broadly appealing brands and to develop successful people.
3
Restaurant Concepts
Red Lobster
Red Lobster is the largest casual dining, seafood-specialty restaurant
operator in the United States. It offers an extensive menu featuring fresh fish,
shrimp, crab, lobster, scallops and other seafood in a casual atmosphere. The
menu includes a variety of specialty seafood and non-seafood entrees, appetizers
and desserts.
Most dinner entree prices range from $8.50 to $28.75, with certain lobster
items available by the pound or at market price. Most lunch entree prices range
from $5.99 to $11.75. The price of each entree includes salad, side items and
our signature Cheddar Bay biscuits. During fiscal 2005, the average check per
person was $17.00 to $18.00, with alcoholic beverages accounting for
approximately 8.2 percent of Red Lobster's sales. Red Lobster maintains
approximately 101 different menus across its trade areas to reflect geographic
differences in consumer preferences, prices and selections, as well as a
lower-priced children's menu.
Olive Garden
Olive Garden is the market share leader among casual dining Italian
restaurants in the United States. Olive Garden's menu includes a variety of
authentic Italian foods featuring fresh ingredients and an expanded wine list
that includes a broad selection of wines imported from Italy. The menu includes
antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas;
sauteed specialties with chicken, seafood and fresh vegetables; grilled meats;
and a variety of desserts. Olive Garden also uses coffee imported from Italy for
its espresso and cappuccino.
Most dinner entree prices range from $7.95 to $18.95, and most lunch entree
prices range from $5.95 to $9.75. The price of each entree also includes as much
fresh salad or soup and breadsticks as a guest desires. During fiscal 2005, the
average check per person was $14.00 to $15.00, with alcoholic beverages
accounting for approximately 8.7 percent of Olive Garden's sales. Olive Garden
maintains approximately 35 different dinner menus and 25 lunch menus across its
trade areas to reflect geographic differences in consumer preferences, prices
and selections, as well as two children's menus.
Bahama Breeze
Bahama Breeze is a restaurant that brings guests the feeling of a Caribbean
escape. It offers the food, drinks and atmosphere one might find in the islands.
The menu features distinctive, Caribbean-inspired fresh seafood, chicken and
steaks as well as signature specialty drinks. The first Bahama Breeze opened in
1996 and met with strong positive consumer response. We continued to test the
concept by opening a limited number of additional restaurants in each of the
following years, and began national expansion of the concept in 1998. While the
concept continued to be well received by guests, its financial performance did
not meet our overall expectations. Bahama Breeze closed six restaurants and
wrote down the carrying value of four others during the fourth quarter of fiscal
2004, reducing to 32 the total number of restaurants in operation. In addition
to closing some underperforming restaurants in fiscal 2004, we made changes
designed to improve the sales, financial performance and long-term potential of
Bahama Breeze. These changes include implementing lunch operations, creating a
new, more approachable dinner menu and reducing the size of a typical Bahama
Breeze building and the related capital investment. We have postponed any new
restaurant expansion at Bahama Breeze while we evaluate the new prototype, which
opened during the fourth quarter of fiscal 2004, and the other business building
enhancements.
Most dinner entree prices at Bahama Breeze range from $9.00 to $20.00, and
most lunch entree prices range from $7.00 to $11.00. During fiscal 2005, the
average check per person was $22.00 to $23.00, with alcoholic beverages
accounting for approximately 25 percent of Bahama Breeze's sales. Bahama Breeze
maintains six different dinner lunch and dinner menus to reflect geographic
differences in consumer preferences, prices and selections, as well as a
children's menu.
Smokey Bones
Smokey Bones features barbequed pork, beef and chicken, as well as other
grilled favorites, all served in a lively yet comfortable mountain-lodge setting
that features televised sports. We opened the first Smokey Bones in
4
September 1999, and began national expansion of the concept in fiscal 2002.
Smokey Bones has been well received by consumers and continues to expand
rapidly. We opened 35 new Smokey Bones restaurants during fiscal 2005, and had
104 restaurants in operation at the end of the fiscal year. We plan to open 25
to 30 new Smokey Bones restaurants in fiscal 2006. We believe that Smokey Bones
has strong expansion potential and is capable of achieving future annual sales
of $500 million or more.
Most Smokey Bones dinner entree prices range from $9.29 to $14.99, and most
lunch entree prices range from $6.49 to $8.49. During fiscal 2005, the average
check per person was $14.00 to $15.00, with alcoholic beverages accounting for
approximately 11.2 percent of Smokey Bones' sales. Smokey Bones maintains
approximately 12 different dinner menus and 12 lunch menus across its trade
areas to reflect geographic differences in consumer preferences, prices and
selections, as well as a children's menu.
Recent and Planned Growth
During fiscal 2005, we opened 55 new restaurants (excluding the relocation
of existing restaurants to new sites and the rebuilding of restaurants at
existing sites) and closed three restaurants. In addition, we had four
restaurants closed temporarily at the end of fiscal 2005 that we expect to
reopen during fiscal 2006. This resulted in a net increase of 56 restaurants in
fiscal 2005. We plan to open approximately 52-68 new Red Lobster, Olive Garden,
Smokey Bones and Seasons 52 restaurants during fiscal 2006 (excluding
relocations and rebuilds). Our actual and projected new openings by concept
(excluding relocations and rebuilds) are shown below.
Actual New Projected New
Restaurant Openings Restaurant Openings
Fiscal 2005 Fiscal 2006
----------- -----------
Red Lobster........................... 1 5-10
Olive Garden.......................... 17 20-25
Bahama Breeze......................... 0 0
Smokey Bones.......................... 35 25-30
Seasons 52............................ 2 2-3
---- -------
Totals............................ 55 52-68
The actual number of openings for each of our concepts will depend on many
factors, including our ability to locate appropriate sites, negotiate acceptable
purchase or lease terms, obtain necessary local governmental permits, complete
construction, and recruit and train restaurant management and hourly personnel.
Our objective is to continue to expand our current portfolio of restaurant
concepts, and to develop or acquire additional concepts that can be expanded
profitably. We have continued to test new ideas and concepts, and also to
evaluate potential acquisition candidates to assess whether they would satisfy
our strategic and financial objectives.
We consider location to be a critical factor in determining a restaurant's
long-term success, and we devote significant effort to the site selection
process. Prior to entering a market, we conduct a thorough study to determine
the optimal number and placement of restaurants. Our site selection process
incorporates a variety of analytical techniques to evaluate key factors. These
factors include trade area demographics, such as target population density and
household income levels; competitive influences in the trade area; the site's
visibility, accessibility and traffic volume; and proximity to activity centers
such as shopping malls, hotel/motel complexes, offices and universities. Members
of senior management evaluate, inspect and approve each restaurant site prior to
its acquisition. Constructing and opening a new restaurant typically takes
approximately 180 days on average after permits are obtained and the site is
acquired.
The following table illustrates the approximate average capital investment,
size and dining capacity of the one Red Lobster, 17 Olive Garden and 35 Smokey
Bones restaurants that were opened during fiscal 2005 (excluding relocations,
rebuilds and conversions of existing restaurants).
5
Capital Square Dining Dining
Investment(1) Feet(2) Seats(3) Tables(4)
------------- ------- -------- ---------
Red Lobster................. $3,348,000 5,656 165 46
Olive Garden................ $3,673,000 7,665 213 59
Smokey Bones................ $3,446,000 7,590 223 51
(1) Includes net present value of leases as well as working capital benefits,
but excludes internal overhead.
(2) Includes all space under the roof, including the coolers and freezers, but
excludes gazebos, pavilions and porte cocheres.
(3) Includes bar dining seats and patio seating, but excludes bar stools.
(4) Includes patio dining tables.
We systematically review the performance of our restaurants to ensure that
each one meets our standards. When a restaurant falls below minimum standards,
we conduct a thorough analysis to determine the causes, and implement marketing
and operational plans to improve that restaurant's performance. If performance
does not improve to acceptable levels, the restaurant is evaluated for
relocation, closing or conversion to one of our other concepts.
During fiscal 2005, we permanently closed three and relocated two Red
Lobster restaurants, and rebuilt two and relocated four Olive Garden
restaurants. During fiscal 2005, we also wrote down the carrying value of two
Olive Garden restaurants, one Red Lobster restaurant and one Smokey Bones
restaurant. The Smokey Bones restaurant was closed subsequent to fiscal 2005
while the two Olive Garden restaurants and one Red Lobster restaurant continued
to operate. These write-downs were a result of less-than-optimal locations. We
continue to evaluate our site locations in order to minimize the risk of future
asset impairment charges.
Restaurant Operations
We believe that high-quality restaurant management is critical to our
long-term success. We also believe that our leadership position, strong
success-oriented culture and various short-term and long-term incentive
programs, including stock options, restricted stock or stock units, help attract
and retain highly motivated restaurant managers.
Our restaurant management structure varies by concept and restaurant size.
Each restaurant is led by a general manager and three to five additional
managers, depending on the operating complexity and sales volume of the
restaurant. Each restaurant also employs approximately 50-180 hourly employees,
most of whom work part-time. We issue detailed operations manuals covering all
aspects of restaurant operations, as well as food and beverage manuals which
detail the preparation procedures of our formulated recipes. The restaurant
management teams are responsible for the day-to-day operation of each restaurant
and for ensuring compliance with our operating standards. At our three largest
concepts, Red Lobster, Olive Garden and Smokey Bones, restaurant general
managers report to directors. At Red Lobster and Olive Garden, each director was
responsible for six to 11 restaurants at the end of fiscal 2005, which is our
target range for each director at established operating companies. At Smokey
Bones, each director was responsible for four to seven restaurants at the end of
fiscal 2005. Restaurants are visited regularly by all levels of supervision to
help ensure strict adherence to all aspects of our standards.
Each concept's vice president or director of training, together with senior
operations executives, are responsible for developing and maintaining that
concept's operations training programs. These efforts include a 12 to 15-week
training program for management trainees, and continuing development programs
for managers, supervisors and directors. The emphasis of the training and
development programs varies by restaurant concept, but includes leadership,
restaurant business management and culinary skills. We also use a highly
structured training program to open new restaurants, including deploying
training teams experienced in all aspects of restaurant operations. The opening
training teams typically begin work one week prior to opening and remain at the
new restaurant up to three weeks after the opening. They are re-deployed as
appropriate to enable a smooth transition to the restaurant's operating staff.
6
Quality Assurance
Our Total Quality Department helps ensure that all restaurants provide
safe, high-quality food in a clean and safe environment. Through rigorous
physical evaluation and testing at our North American laboratories and through
"point source inspection" by our international team of Quality Specialists in
several foreign countries, we purchase only seafood that meets or exceeds our
specifications. We use independent third parties to inspect and evaluate
commodity vendors. In addition, any commodity supplier that produces a "high
risk" product is subject to a food safety evaluation by Darden personnel at
least annually. We require our suppliers to maintain sound manufacturing
practices and operate with the comprehensive HACCP food safety programs in
place. Since 1976, we have required routine microbiological testing of seafood
and other commodities for quality and microbiological safety. In addition,
Darden Total Quality Managers and third party auditors visit each restaurant
periodically throughout the year to review food handling and to provide
education and training in food safety and sanitation. The Total Quality managers
also serve as a liaison to regulatory agencies on issues relating to food
safety.
Purchasing and Distribution
Our ability to ensure a consistent supply of high-quality food and supplies
at competitive prices to all of our restaurant concepts depends upon procurement
from reliable sources. Our purchasing staff sources, negotiates and purchases
food and supplies from more than 2,000 suppliers in approximately 45 countries.
Suppliers must meet strict quality control standards in the development,
harvest, catch and production of food products. Competitive bids, long-term
contracts and long-term vendor relationships are routinely used to manage
availability and cost of products.
We believe that our seafood purchasing capabilities are a significant
competitive advantage. Our purchasing staff travels routinely within the United
States and internationally to source more than 100 varieties of top-quality
seafood at competitive prices. We believe that we have established excellent
long-term relationships with key seafood vendors, and usually source our product
directly from producers (not brokers or middlemen). We operate procurement
offices in Singapore and Toronto, our only purchasing offices outside of
Orlando, to source products directly from Asia and Canada. While the supply of
certain seafood species is volatile, we believe we have the ability to identify
alternative seafood products and to adjust our menus as necessary. All other
essential food products are available, or can be made available upon short
notice, from alternative qualified suppliers. Because of the relatively rapid
turnover of perishable food products, inventories in the restaurants have a
modest aggregate dollar value in relation to sales. Controlled inventories of
specified products are distributed to all restaurants through independent
national distribution companies.
Our supplier diversity program is an integral part of our purchasing
efforts. Through this program, we identify minority and women-owned vendors and
assist them in establishing supplier relationships with us. We are committed to
the development and growth of minority and women-owned enterprises, and in
fiscal 2005 we spent approximately 6.6 percent and 2.2 percent, respectively, of
our purchasing dollars with those firms.
Advertising and Marketing
We believe we have developed significant marketing and advertising
capabilities. Our size enables us to be a leading advertiser in the casual
dining segment of the restaurant industry. Red Lobster and Olive Garden leverage
the efficiency of national network television advertising and supplement it with
local television advertising. Bahama Breeze and Smokey Bones do not use national
television advertising. Our restaurants appeal to a broad spectrum of consumers
and we use advertising and product promotions to attract customers. We implement
periodic promotions as appropriate to maintain and increase our sales and
profits. We also rely on radio and newspaper advertising, as well as newspaper
and direct mail coupon programs, as appropriate, to attract customers. We have
developed and consistently use sophisticated consumer marketing research
techniques to monitor customer satisfaction and evolving expectations.
7
Employees
At the end of fiscal 2005, we employed approximately 150,100 persons. Of
these employees, approximately 1,300 were corporate or restaurant concept
personnel located in our restaurant support center in Orlando, Florida,
approximately 6,030 were restaurant management personnel in the restaurants or
in field offices, and the remainder were hourly restaurant personnel. Of the
restaurant support center employees, approximately 60 percent were management
personnel and the balance were administrative or office employees. Our operating
executives have an average of more than 14 years of experience with us. The
restaurant general managers average 12 years with us. We believe that we provide
working conditions and compensation that compare favorably with those of our
competitors. Most employees, other than restaurant management and corporate
management, are paid on an hourly basis. None of our employees are covered by a
collective bargaining agreement. We consider our employee relations to be good.
Information Technology
We strive for leadership in the restaurant business by using technology as
a competitive advantage and as an enabler of our strategy. Since 1975, computers
located in the restaurants have been used to assist in the management of the
restaurants. We have implemented systems targeted at improved financial control,
cost management, enhanced guest service and improved employee effectiveness.
Management information systems are designed to be used across restaurant
concepts, yet are flexible enough to meet the unique needs of each restaurant
concept. Several years ago, we implemented a suite of web-enabled and fully
integrated financial and human resource (including payroll and benefits)
systems. We also implemented a high-speed data network connecting all
restaurants to all current and anticipated future applications. In the past
year, we have been developing and piloting a next generation technology platform
for our restaurant point of sale system. We expect to deploy the new platform,
including new hardware and software, to all restaurant concepts over the next
three years.
Restaurant hardware and software support is provided or coordinated from
the restaurant support center in Orlando, Florida, seven days a week, 24 hours a
day. A communications network sends and receives critical business data to and
from the restaurants throughout the day and night, providing timely and
extensive information on business activity in every location. The restaurant
support center houses our data center, which contains sufficient computing power
to process information from all restaurants quickly and efficiently. Our
information is processed in a secured environment to protect both the actual
data and the physical assets. We guard against business interruption by
maintaining a disaster recovery plan, which includes storing critical business
information off-site, testing the disaster recovery plan at a hot-site facility
and providing on-site power backup via a large diesel generator. We use
internally developed proprietary software, as well as purchased software, with
proven, non-proprietary hardware. This allows processing power to be distributed
effectively to each of our restaurants.
Our management believes that our current systems and practice of
implementing regular updates will position us well to support current needs and
future growth. We are committed to maintaining an industry leadership position
in information systems and computing technology. We use a strategic information
systems planning process that involves senior management and is integrated into
our overall business planning. Information systems projects are prioritized
based upon strategic, financial, regulatory and other business advantage
criteria.
Competition
The restaurant industry is intensely competitive with respect to the type
and quality of food, price, service, restaurant location, personnel, concept,
attractiveness of facilities, and effectiveness of advertising and marketing.
The restaurant business is often affected by changes in consumer tastes;
national, regional or local economic conditions; demographic trends; traffic
patterns; the type, number and location of competing restaurants; and consumers'
discretionary purchasing power. We compete within each market with national and
regional chains and locally-owned restaurants for customers, management and
hourly personnel and suitable real estate sites. We also face growing
competition from the supermarket industry, which offers "convenient meals" in
the form of improved entrees and side dishes from the deli section. We expect
intense competition to continue in all of these areas.
Other factors pertaining to our competitive position in the industry are
addressed under the sections entitled "Purchasing and Distribution,"
"Advertising and Marketing," "Information Technology" and "Forward-Looking
8
Statements" elsewhere in this report.
Trademarks and Related Agreements
We regard our Darden Restaurants(R), Red Lobster(R), Olive Garden(R),
Bahama Breeze(R), Smokey Bones Barbeque & Grill(R) and Seasons 52(R) service
marks, and other variations of these service marks, as having significant value
and as being important in marketing the restaurants. Our policy is to pursue
registration of our important service marks and trademarks and to oppose
vigorously any infringement of them. Generally, with appropriate renewal and
use, the registration of our service marks will continue indefinitely.
Our only restaurant operations outside of North America historically have
been conducted through an Area Development and Franchise Agreement with Red
Lobster Japan Co., Ltd. ("Red Lobster Japan"), an unaffiliated Japanese
corporation. Red Lobster Japan operated 37 Red Lobster restaurants in Japan as
of May 29, 2005. We do not have an ownership interest in Red Lobster Japan, but
receive royalty income under the Franchise Agreement. The amount of this income
is not material to our consolidated financial statements.
Seasonality
Our sales volumes fluctuate seasonally. During fiscal 2005, our sales were
highest in the spring and winter, followed by summer, and lowest in the fall.
During 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 impact sales volumes seasonally in some operating
regions.
Government Regulation
We are subject to various federal, state and local laws affecting our
business. Each of our restaurants must comply with licensing requirements and
regulations by a number of governmental authorities, which include health,
safety and fire agencies in the state or municipality in which the restaurant is
located. The development and operation of restaurants depend on selecting and
acquiring suitable sites, which are subject to zoning, land use, environmental,
traffic and other regulations. To date, we have not been significantly affected
by any difficulty, delay or failure to obtain required licenses or approvals.
During fiscal 2005, approximately 9.2 percent of our sales were
attributable to the sale of alcoholic beverages. Regulations governing their
sale require licensure by each site (in most cases, on an annual basis), and
licenses may be revoked or suspended for cause at any time. These regulations
relate to many aspects of restaurant operation, including the minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, and storage and dispensing of alcoholic
beverages. The failure of a restaurant to obtain or retain these licenses would
adversely affect the restaurant's operations. We also are subject in certain
states to "dram-shop" statutes, which generally provide an injured party with
recourse against an establishment that serves alcoholic beverages to an
intoxicated person, who then causes injury to himself or a third party. We carry
liquor liability coverage as part of our comprehensive general liability
insurance.
We also are subject to federal and state minimum wage laws and other laws
governing such matters as overtime, tip credits, working conditions, safety
standards, and hiring and employment practices. Changes in these laws during
fiscal 2005 have not had a material effect on our operations.
We currently are operating under a Tip Rate Alternative Commitment ("TRAC")
agreement with the Internal Revenue Service. Through increased educational and
other efforts in the restaurants, the TRAC agreement reduces the likelihood of
potential chain-wide employer-only FICA assessments for unreported tips.
We are subject to federal and state environmental regulations, but these
rules have not had a material effect on our operations. During fiscal 2005,
there were no material capital expenditures for environmental control facilities
and no material expenditures for this purpose are anticipated.
Our facilities must comply with the applicable requirements of the
Americans With Disabilities Act of 1990 ("ADA") and related state accessibility
statutes. Under the ADA and related state laws, we must provide equivalent
9
service to disabled persons, and make reasonable accommodation for their
employment, and when constructing or undertaking significant remodeling of our
restaurants, we must make those facilities accessible.
Executive Officers of the Registrant
Our executive officers as of July 29, 2005 are listed below.
Joe R. Lee, age 64, has been our Chairman of the Board since April 1995. He
served as our Chief Executive Officer from December 1994 until November 2004.
Mr. Lee joined Red Lobster in 1967 as a member of its opening management team,
and was named its President in 1975. From 1970 to 1995, he held various
positions with General Mills, Inc., a manufacturer and marketer of consumer food
products and our former parent company, including Vice Chairman, with
responsibility for various consumer foods businesses and corporate staff
functions, Chief Financial Officer and Executive Vice President, Finance and
International Restaurants.
Clarence Otis, Jr., age 49, has been our Chief Executive Officer since
November 2004, and a Director since September 2004. Mr. Otis was our Executive
Vice President from March 2002 until November 2004 and President of Smokey Bones
Barbeque & Grill from December 2002 until November 2004. He served as our Senior
Vice President from December 1999 until April 2002, and our Chief Financial
Officer from December 1999 until December 2002. He joined us in 1995 as Vice
President and Treasurer. He served as our Senior Vice President, Investor
Relations and Treasurer from July 1997 to July 1998, and as Senior Vice
President, Finance and Treasurer from July 1998 until December 1999. From 1991
to 1995, he was employed by Chemical Securities, Inc. (now J.P. Morgan
Securities, Inc.), an investment banking firm, where he had been Managing
Director and Manager of Public Finance.
Andrew H. (Drew) Madsen, age 49, has been our President and Chief Operating
Officer since November 2004, and a Director since September 2004. Mr. Madsen was
our Senior Vice President and President of Olive Garden from March 2002 until
November 2004, and Executive Vice President of Marketing for Olive Garden from
December 1998 to March 2002. From 1997 until joining us, he was President of
International Master Publishers, Inc., a company that developed and marketed
consumer information products such as magazines and compact discs. From 1993
until 1997, he held various positions at James River Corporation (now part of
Georgia-Pacific Corporation, a diversified paper and building products
manufacturer), including Vice President and General Manager for the Dixie
consumer products unit.
Blaine Sweatt, III, age 57, has been our President, New Business
Development since February 1996 and Executive Vice President since April 1995,
and a Director since 1995. He led teams that developed the Olive Garden, Bahama
Breeze, Smokey Bones and Seasons 52 concepts, among others. He joined Red
Lobster in 1976 and was named Director of New Restaurant Concept Development in
1981. From 1986 to 1989, he held various positions with General Mills, Inc., a
manufacturer and marketer of consumer food products and our former parent
company.
James (J.J.) Buettgen, age 45, has been our Senior Vice President and
President of Smokey Bones Barbeque & Grill since November 2004. From August 2004
until assuming his current position he was our Senior Vice President and
President-designate of Smokey Bones. From July 2003 until August 2004, he was
President of Big Bowl Asian Kitchen, a casual dining company owned by Brinker
International, Inc., a restaurant operator, and from October 2002 until June
2003 he was Senior Vice President of Marketing and Brand Development for
Brinker. From 1999 to 2002, he was Senior Vice Present of Marketing and Sales
for Disneyland Resorts, a division of the Walt Disney Company, where he helped
launch Disney's California Adventure theme park, and from 1998 to 1999 was
Senior Vice President of Marketing for Hollywood Entertainment Group, a video
retailer. He held several marketing posts with our former parent company,
General Mills, Inc., a manufacturer and marketer of consumer food products, from
1989 through 1994, and served first as director and then as Vice President of
Marketing for Olive Garden from 1994 until 1998.
Laurie B. Burns, age 43, has been our Senior Vice President and President
of Bahama Breeze since March 2003. She joined us in April 1999 as Vice President
of Development for Red Lobster, and served as our Senior Vice President,
Development from September 2000 until March 2003. She was a private real estate
consultant from
10
October 1998 until joining us in April 1999, and was Regional Vice President for
Development for the Eastern United States at Homestead Village, an extended-stay
hotel company, from 1995 to 1998.
Linda J. Dimopoulos, age 54, has been our Senior Vice President and Chief
Financial Officer since December 2002. She joined us in 1982, and served as
Senior Vice President, Financial Operations of Red Lobster from 1993 to July
1998, as our Senior Vice President, Corporate Controller and Business
Information Systems from July 1998 to December 1999, and as our Senior Vice
President, Chief Information Officer from December 1999 until assuming her
current position in December 2002.
Stephen E. Helsel, age 60, has been our Senior Vice President, Corporate
Controller since December 1999, and will retire on July 29, 2005. He joined us
in 1973 as an accountant with Red Lobster, and was named Vice President,
Controller of Red Lobster in 1989. He served as our Vice President, Controller,
Accounting Services from 1991 to 1996, and as Senior Vice President, Information
Services from 1996 until December 1999.
Kim Lopdrup, age 47, has been our Senior Vice President and President of
Red Lobster since May 2004. He joined us in November 2003 as Executive Vice
President of Marketing for Red Lobster. From 2001 until 2002, he served as
Executive Vice President and Chief Operating Officer for North American
operations of Burger King Corporation, an operator and franchiser of fast food
restaurants. From 1985 until 2001, he worked for Allied Domecq Quick Service
Restaurants ("ADQSR"), a franchiser of quick service restaurants including
Dunkin' Donuts, Baskin-Robbins and Togo's Eateries, where he held progressively
more responsible positions in marketing, strategic and general management roles,
eventually serving as Chief Executive Officer of ADQSR International.
Daniel M. Lyons, age 52, has been our Senior Vice President, Human
Resources since January 1997. He joined us in 1993 as Senior Vice President of
Personnel for Olive Garden. Prior to joining Olive Garden, he spent 18 years
with the Quaker Oats Company, an international marketer of food and beverage
products, holding increasingly more responsible positions including Vice
President Human Resources for the North American Breakfast Food Division.
Barry Moullet, age 47, has been our Senior Vice President, Supply Chain &
Development since August 2003. He served as our Senior Vice President
Purchasing, Distribution and Food Safety from June 1999 until August 2003. He
joined us in July 1996 as Senior Vice President, Purchasing and Distribution.
Prior to joining us, he spent 15 years in the purchasing field in various
positions with Restaurant Services, Inc., a Burger King purchasing co-operative,
KFC Corporation and the Pillsbury Company.
Dave Pickens, age 50, has been our Senior Vice President and President of
Olive Garden since December 2004. He joined us in 1973 as a Red Lobster hourly
employee, and progressed from manager trainee to regional operations manager,
director of operations, and ultimately was promoted to a division Senior Vice
President of Operations for Red Lobster. He joined Olive Garden in 1995 as
Senior Vice President of Operations for the Orlando division and was promoted to
Executive Vice President of Operations in September 1999, where he served until
his promotion to President of Olive Garden in December 2004.
C. Bradford Richmond, age 46, will become our Senior Vice President,
Corporate Controller effective August 1, 2005, succeeding Stephen Helsel who is
retiring. He currently is Senior Vice President Finance, Strategic Planning and
Controller of Red Lobster, a position he has held since January 2003, and
previously was Senior Vice President, Finance and Controller at Olive Garden
from August 1998 to January 2003. He joined us in 1982 as a food and beverage
analyst for Casa Gallardo, a restaurant concept formerly owned and operated by
us, and from June 1985 to August 1998 held progressively more responsible
finance and marketing analyst positions with our York Steak House, Red Lobster
and Olive Garden operating companies in both the United States and Canada.
Paula J. Shives, age 54, has been our Senior Vice President, General
Counsel and Secretary since June 1999. Prior to joining us, she served as Senior
Vice President, General Counsel and Secretary from 1995 to 1999, and Associate
General Counsel from 1985 to 1995, of Long John Silver's Restaurants, Inc.
Richard J. Walsh, age 53, has been our Senior Vice President, Corporate
Affairs since 1994. He joined General Mills, Inc., a manufacturer and marketer
of consumer food products and our former parent company, in 1984 as Manager of
Government Affairs for Red Lobster. He served as Vice President of Government
and
11
Community Relations for General Mills Restaurants, Inc. from 1987 until assuming
his current position in December 1994.
Cautionary Factors That Could Affect Our Results
Described below are important factors, risks and uncertainties that could
cause our actual results to differ materially from those projected in
forward-looking statements made by us or on our behalf.
Intense Competition.
The casual dining sector of the restaurant industry is intensely
competitive with respect to pricing, service, location, personnel and type and
quality of food, and there are many well-established competitors. We compete
within each market with national and regional restaurant chains and
locally-owned restaurants. We also face growing competition as a result of the
trend toward convergence in grocery, deli and restaurant services, particularly
in the supermarket industry which offers "convenient meals" in the form of
improved entrees and side dishes from the deli section. We compete primarily on
the quality, variety and value perception of menu items. The number and location
of restaurants, type of concept, quality and efficiency of service,
attractiveness of facilities and effectiveness of advertising and marketing
programs are also important factors. We anticipate that intense competition will
continue with respect to all of these factors. If we are unable to continue to
compete effectively, our business, financial condition and results of operations
would be adversely affected.
Economic and Business Factors.
Our business results depend on a number of industry-specific and general
economic factors, many of which are beyond our control. The casual dining sector
of the restaurant industry is affected by changes in national, regional and
local economic conditions, seasonal fluctuation of sales volumes, consumer
preferences, including changes in consumer tastes and dietary habits and the
level of consumer acceptance of our restaurant concepts, and consumer spending
patterns. The performance of individual restaurants may also be adversely
affected by factors such as demographic trends, severe weather, traffic patterns
and the type, number and location of competing restaurants.
In addition, general economic conditions, such as recessionary economic
cycles, a protracted economic slowdown, a worsening economy or industry-wide
cost pressures, could affect consumer behavior and spending for restaurant
dining occasions and lead to a decline in sales and earnings. Furthermore, we
cannot predict the effects of actual or threatened armed conflicts or terrorist
attacks, efforts to combat terrorism, military action against any foreign state
or group located in a foreign state or heightened security requirements on the
economy or consumer confidence in the United States. Any of these events could
also affect consumer spending patterns or result in increased costs for us due
to security measures.
Unfavorable changes in the above factors or in other business and economic
conditions affecting our customers could increase our costs, reduce traffic in
some or all of our restaurants or impose practical limits on pricing, any of
which could lower our profit margins and have a material adverse affect on our
financial condition and results of operations.
Price and Availability of Food, Ingredients and Utilities.
Our results of operations depend significantly on our ability to anticipate
and react to changes in the price and availability of food, ingredients,
utilities and other related costs over which we may have little control.
Operating margins for our restaurants are subject to changes in the price and
availability of food commodities, including shrimp, lobster, crab and other
seafood, as well as beef, pork, chicken, cheese and produce. The introduction of
or changes to tariffs on imported shrimp or other food products could increase
our costs and possibly impact the supply of those products. We are subject to
the general risks of inflation. In addition, possible shortages or interruptions
in the supply of food items caused by inclement weather or other conditions
beyond our control could adversely affect the availability, quality and cost of
the items we buy. Our restaurants' operating margins are also affected by
fluctuations in the price of utilities such as natural gas, whether as a result
of inflation or otherwise, on which the restaurants depend for their energy
supply. Our inability to anticipate and respond effectively to an adverse change
in any of these factors could have a significant adverse effect on our results
of operations.
12
Labor and Insurance Costs.
Our restaurant operations are subject to federal and state laws governing
such matters as minimum wages, working conditions, overtime and tip credits. We
have a substantial number of employees who are paid wage rates at or slightly
above the minimum wage. As federal and state minimum wage rates increase, we may
need to increase not only the wages of our minimum wage employees but also the
wages paid to employees at wage rates that are above minimum wage. Labor
shortages and increased employee turnover could also increase our labor costs.
If competitive pressures or other factors prevent us from offsetting increased
labor costs by increases in prices, our profitability may decline. In addition,
the current premiums that we pay for our insurance (including workers'
compensation, general liability, health, and directors' and officers' liability)
may increase at any time, thereby further increasing our costs. The dollar
amount of claims that we actually experience under our workers' compensation and
general liability insurance, for which we carry high per-claim deductibles, may
also increase at any time, thereby further increasing our costs.
Increased advertising and marketing costs.
If our competitors increase their spending on advertising and promotion, if
our advertising, media or marketing expenses increase, or if our advertising and
promotion become less effective than that of our competitors, we could
experience a material adverse effect on our results of operations.
Higher-than-anticipated Costs to Open or Close Restaurants.
Our revenues and expenses can be impacted significantly by the number and
timing of the opening of new restaurants and the closing, relocating and
remodeling of existing restaurants. We incur substantial pre-opening expenses
each time we open a new restaurant and other expenses when we close, relocate or
remodel existing restaurants. The expenses of opening, closing, relocating or
remodeling any of our restaurants, may be higher than anticipated. An increase
in such expenses could have an adverse effect on our results of operations.
Litigation.
Our business is subject to the risk of litigation by employees, consumers,
suppliers, shareholders or others through private actions, class actions,
administrative proceedings, regulatory actions or other litigation. The outcome
of litigation, particularly class action lawsuits and regulatory actions, is
difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek
recovery of very large or indeterminate amounts, and the magnitude of the
potential loss relating to such lawsuits may remain unknown for substantial
periods of time. The cost to defend future litigation may be significant. There
may also be adverse publicity associated with litigation that could decrease
customer acceptance of our services, regardless of whether the allegations are
valid or whether we are ultimately found liable. As a result, litigation may
adversely affect our business, financial condition and results of operations.
Unfavorable Publicity.
Multi-unit restaurant businesses such as ours can be adversely affected by
publicity resulting from complaints or litigation alleging poor food quality,
food-borne illness, personal injury, adverse health effects (including obesity)
or other concerns. Negative publicity may also result from actual or alleged
violations by our restaurants of "dram shop" laws which generally provide an
injured party with recourse against an establishment that serves alcoholic
beverages to an intoxicated party who then causes injury to himself or to a
third party. Regardless of whether the allegations or complaints are valid,
unfavorable publicity relating to a limited number of our restaurants, or only
to a single restaurant, could adversely affect public perception of the entire
brand. Adverse publicity and its effect on overall consumer perceptions of food
safety could have a material adverse effect on our business.
Lack of Suitable Locations.
The success of our restaurants depends in large part on their location. As
demographic and economic patterns change, current locations may not continue to
be attractive or profitable. Possible declines in neighborhoods where our
restaurants are located or adverse economic conditions in areas surrounding
those neighborhoods could result in reduced revenues in those locations. In
addition, desirable locations for new restaurant openings or for the relocation
of existing restaurants may not be available at an acceptable cost when we
identify a particular opportunity
13
for a new restaurant or relocation. The occurrence of one or more of these
events could have a significant adverse effect on our revenues and results of
operations.
Government Regulations.
The restaurant industry is subject to extensive federal, state and local
laws and regulations, including those relating to building and zoning
requirements and those relating to the preparation and sale of food. The
development and operation of restaurants depend to a significant extent on the
selection and acquisition of suitable sites, which are subject to zoning, land
use, environmental, traffic and other regulations and requirements. We are also
subject to licensing and regulation by state and local authorities relating to
health, sanitation, safety and fire standards and liquor licenses, federal and
state laws governing our relationships with employees (including the Fair Labor
Standards Act and applicable minimum wage requirements, overtime, family leave,
tip credits, working conditions, safety standards and citizenship requirements),
federal and state laws which prohibit discrimination and other laws regulating
the design and operation of facilities, such as the Americans With Disabilities
Act of 1990. In addition, we are subject to a variety of federal, state and
local laws and regulations relating to the use, storage, discharge, emission,
and disposal of hazardous materials. The impact of current laws and regulations,
the effect of future changes in laws or regulations that impose additional
requirements and the consequences of litigation relating to current or future
laws and regulations could increase our compliance and other costs of doing
business and therefore have an adverse effect on our results of operations.
Failure to comply with the laws and regulatory requirements of federal, state
and local authorities could result in, among other things, revocation of
required licenses, administrative enforcement actions, fines and civil and
criminal liability.
Failure to Achieve Growth Objectives.
As part of our business strategy, we intend to continue to expand our
current portfolio of restaurant concepts and to develop or acquire additional
concepts that can be expanded profitably. This strategy involves numerous risks,
and we may not be able to achieve our growth objectives. We may not be able to
open all of our planned new restaurants, and the new restaurants that we open
may not be profitable or as profitable as our existing restaurants. New
restaurants typically experience an adjustment period before sales levels and
operating margins normalize, and even sales at successful newly-opened
restaurants generally do not make a significant contribution to profitability in
their initial months of operation. The opening of new restaurants can also have
an adverse effect on sales levels at existing restaurants. There are additional
risks involved with expanding newer concepts (such as Bahama Breeze and Smokey
Bones) that have not yet proven their long-term viability. Furthermore, we may
not be able to develop or acquire additional concepts that are as profitable as
our existing restaurants. Growth through acquisitions may involve additional
risks. For example, we may pay too much for a concept relative to the actual
economic return, be required to borrow funds to make our acquisition (which
would increase our interest expense) or be unable to integrate an acquired
concept into our operations.
The ability to open and profitably operate restaurants is subject to
various risks, such as the identification and availability of suitable and
economically viable locations, the negotiation of acceptable lease or purchase
terms for new locations, the need to obtain all required governmental permits
(including zoning approvals and liquor licenses) on a timely basis, the need to
comply with other regulatory requirements, the availability of necessary
contractors and subcontractors, the ability to meet construction schedules and
budgets, the ability to manage union activities such as picketing or hand
billing which could delay construction, increases in labor and building
materials costs, the availability of financing at acceptable rates and terms,
changes in weather or other acts of God that could result in construction delays
and adversely affect the results of one or more restaurants for an indeterminate
amount of time, our ability to hire and train qualified management personnel and
general economic and business conditions. At each potential location, we compete
with other restaurants and retail businesses for desirable development sites,
construction contractors, management personnel, hourly employees and other
resources. If we are unable to successfully manage these risks, we could face
increased costs and lower than anticipated revenues and earnings in future
periods.
Cautionary Statement Regarding Forward-Looking Statements
This report may contain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of Darden Restaurants, Inc. and its subsidiaries.
Statements preceded by, followed by or that include words such as "may," "will,"
"expect," "intend," "anticipate,"
14
"continue," "estimate," "project," "believe," "plan" or similar expressions are
intended to identify some of the forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 and are included, along
with this statement, for purposes of complying with the safe harbor provisions
of that Act. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those contemplated by the
forward-looking statements due to, among others, the risks and uncertainties
described in this report, including under the heading "Cautionary Factors That
Could Affect Our Results," and the documents incorporated by reference in this
report. We undertake no obligation to update publicly or revise any
forward-looking statements for any reason, whether as a result of new
information, future events or otherwise.
Item 2. PROPERTIES
As of May 29, 2005, we operated 1,381 restaurants (including 679 Red
Lobster, 563 Olive Garden, 32 Bahama Breeze, 104 Smokey Bones and three Seasons
52 restaurants) in the following locations:
Alabama (22) Iowa (14) Nevada (12) South Dakota (3)
Arizona (29) Kansas (11) New Hampshire (5) Tennessee (34)
Arkansas (11) Kentucky (17) New Jersey (29) Texas (111)
California (96) Louisiana (12) New Mexico (11) Utah (13)
Colorado (26) Maine (4) New York (51) Vermont (1)
Connecticut (9) Maryland (24) North Carolina (32) Virginia (45)
Delaware (4) Massachusetts (11) North Dakota (4) Washington (25)
Florida (146) Michigan (52) Ohio (84) West Virginia (7)
Georgia (59) Minnesota (24) Oklahoma (18) Wisconsin (20)
Hawaii (1) Mississippi (8) Oregon (12) Wyoming (2)
Idaho (6) Missouri (31) Pennsylvania (69) Canada (37)
Illinois (57) Montana (2) Rhode Island (3)
Indiana (47) Nebraska (8) South Carolina (22)
Of our 1,381 restaurants open on May 29, 2005, 838 were located on owned
sites and 543 were located on leased sites. The 543 leases are classified as
follows:
Land-Only Leases (we own buildings and equipment)............ 423
Ground and Building Leases................................... 68
Space/In-Line/Other Leases................................... 52
----
Total............................................... 543
====
During fiscal 1999, we formed two subsidiary corporations, each of which
elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code. These elections limit the
activities of both corporations to holding certain real estate assets. The
formation of these two REITs is designed primarily to assist us in managing our
real estate portfolio and possibly to provide a vehicle to access capital
markets in the future.
Both REITs are non-public REITs. Through our subsidiary companies, we
indirectly own 100 percent of all voting stock and greater than 99.5 percent of
the total value of each REIT. For financial reporting purposes, both REITs are
included in our consolidated financial statements.
Of the 15 buildings that make up our executive offices, culinary center and
training facilities in Orlando, Florida, we own 11 and lease four. Except in
limited instances, our restaurant sites and other facilities are not subject to
mortgages or encumbrances securing money borrowed by us from outside sources. In
our opinion, our buildings and equipment generally are in good condition,
suitable for their purposes and adequate for our current and foreseeable needs.
See also Note 4 "Land, Buildings, and Equipment, Net" and Note 12 "Leases" under
Notes to Consolidated Financial Statements in our 2005 Annual Report to
Shareholders, incorporated herein by reference.
Item 3. LEGAL PROCEEDINGS
We are subject to private lawsuits, administrative proceedings and claims
that arise in the ordinary course of our business. A number of these lawsuits,
proceedings and claims may exist at any given time. These matters
15
typically involve claims from guests, employees and others related to
operational issues common to the restaurant industry, and can also involve
infringement of, or challenges to, our trademarks. While the resolution of a
lawsuit, proceeding or claim may have an impact on our financial results for the
period in which it is resolved, we believe that the final disposition of the
lawsuits, proceedings and claims in which we are currently involved, either
individually or in the aggregate, will not have a material adverse effect on our
financial position, results of operations or liquidity.
Like other restaurant companies and retail employers, we have been faced in
a few states with allegations of purported class-wide wage and hour violations.
The following is a brief description of the more significant of these matters.
In view of the inherent uncertainties of litigation, the outcome of any
unresolved matter described below cannot be predicted at this time, nor can the
amount of any potential loss be reasonably estimated.
In March 2002 and March 2003, two purported class action lawsuits were
brought against us in the Superior Court of Orange County, California by three
current and former hourly restaurant employees alleging violations of California
labor laws with respect to providing meal and rest breaks. Although we continue
to believe we provided the required meal and rest breaks to our employees, to
avoid potentially costly and protracted litigation, we agreed during the second
quarter of fiscal 2005 to settle both lawsuits and a similar case filed in
Sacramento County, for approximately $9.5 million. Terms of the settlement,
which do not include any admission of liability by us, have received preliminary
judicial approval, but completion of the settlement may not occur for several
months. We recorded settlement expenses associated with these lawsuits of
approximately $4.5 million during fiscal 2005 and approximately $5.0 million
during fiscal 2004, which are included in selling, general and administrative
expenses. The settlement amounts of these lawsuits are included in other current
liabilities at May 29, 2005.
In August 2003, three former employees in Washington 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 appeal of the denial of reconsideration was also not
granted. We believe we provided the required meal and rest breaks to our
employees, and we intend to vigorously defend our position in this case.
Beginning in 2002, a total of five purported class action lawsuits have
been filed in Superior Courts of California (two each in Los Angeles County and
Orange County, and one in Sacramento County) in which the plaintiffs allege that
they and other current and former service managers, beverage and hospitality
managers and culinary managers were improperly classified as exempt employees
under California labor laws. The plaintiffs seek unpaid overtime wages and
penalties. Two of the cases have been removed to arbitration under our mandatory
arbitration program, and we are seeking to cause the remaining cases to be
stayed pending resolution of the earliest-filed cases. We believe we properly
classified these employees as exempt under California law and we intend to
vigorously defend against all claims in these lawsuits.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The principal United States market on which our common shares are traded is
the New York Stock Exchange, where our shares are traded under the symbol DRI.
As of July 25, 2005, there were approximately 40,602 record holders of our
common shares. The information concerning the dividends and high and low
intraday sales prices for our common shares traded on the New York Stock
Exchange for each full quarterly period during fiscal 2004 and 2005 contained in
Note 19, "Quarterly Data (Unaudited)" in our 2005 Annual Report to Shareholders
is incorporated herein by reference. We have not sold any securities during the
last fiscal year that were not registered under the Securities Act of 1933.
16
The table below provides information concerning our repurchase of shares of
our common stock during the fourth quarter of fiscal 2005. Since commencing our
repurchase program in December 1995, we have repurchased a total of 120,584,871
shares under authorizations from our Board of Directors to repurchase an
aggregate of 137,400,000 shares.
- --------------------------- ---------------- ------------ ---------------------- --------------------
Total Number of Maximum Number of
Shares Purchased as Shares that
Total Number Average Part of Publicly May Yet be
of Shares Price Paid Announced Plans or Purchased Under the
Period Purchased(1) per Share Programs Program (2)
- --------------------------- ---------------- ------------ ---------------------- --------------------
February 28, 2005 through
April 3, 2005 1,571,038 $30.27 1,571,038 19,745,811
- --------------------------- ---------------- ------------ ---------------------- --------------------
April 4, 2005 through
May 1, 2005 1,450,725 $30.86 1,450,725 18,295,086
- --------------------------- ---------------- ------------ ---------------------- --------------------
May 2, 2005 through
May 29, 2005 1,479,957 $31.29 1,479,957 16,815,129
- --------------------------- ---------------- ------------ ---------------------- --------------------
Total 4,501,720 $30.80 4,501,720 16,815,129
- --------------------------- ---------------- ------------ ---------------------- --------------------
<FN>
(1) All of the shares purchased during the fourth quarter of fiscal 2005 were
purchased as part of our repurchase program, the authority for which was
increased 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 the
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 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 repurchased 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 include the additional 22 million shares that were
authorized to be repurchased by our Board on September 28, 2004.
</FN>
Item 6. SELECTED FINANCIAL DATA
The information for fiscal 2001 through 2005 contained in the Five-Year
Financial Summary in our 2005 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our 2005
Annual Report to Shareholders is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The text under the heading "Quantitative and Qualitative Disclosures About
Market Risk" contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our 2005 Annual Report to Shareholders
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Registered Public Accounting Firm, Consolidated
Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of
Changes in Stockholders' Equity and Accumulated Other
17
Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and Notes to
Consolidated Financial Statements in our 2005 Annual Report to Shareholders are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) as of May 29, 2005, the end of the
period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of May 29, 2005.
During the fiscal quarter ended May 29, 2005, 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.
The annual report of our management on internal control over financial
reporting, and the attestation report of KPMG LLP, our independent registered
public accounting firm, regarding our internal control over financial reporting
in our 2005 Annual Report to Shareholders, are incorporated herein by reference.
Item 9B. OTHER INFORMATION.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the sections entitled "Who Are This Year's
Nominees?", "What Board Committees Do You Have?" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our definitive Proxy Statement for our 2005
Annual Meeting of Shareholders is incorporated herein by reference. Information
regarding executive officers is contained in Part I above under the heading
"Executive Officers of the Registrant."
All of our employees are subject to our Code of Business Conduct and
Ethics. Appendix A to the Code provides a special Code of Ethics with additional
provisions that apply to our principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing
similar functions (the "Senior Financial Officers"). Appendix B to the Code
provides a Code of Business Conduct and Ethics for members of our Board of
Directors. These documents are posted on our internet website at www.darden.com
and are available in print free of charge to any shareholder who requests them.
We will disclose any amendments to or waivers of these Codes for directors,
executive officers or senior financial officers on our website.
We also have adopted a set of Corporate Governance Guidelines and charters
for all of our Board Committees, including the Audit, Compensation, and
Nominating and Governance Committees. The Corporate Governance Guidelines and
committee charters are available on our website at www.darden.com and in print
free of charge to any shareholder who requests them. Written requests for our
Code of Business Conduct and Ethics, Corporate Governance Guidelines and
committee charters should be addressed to Darden Restaurants, Inc., 5900 Lake
Ellenor Drive, Orlando, FL 32809, Attention: Corporate Secretary.
18
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "How Are Directors
Compensated?"; "Summary Compensation Table"; "Option Grants In Last Fiscal
Year"; "Stock Option Exercises And Holdings"; "Long-Term Incentive Plans -
Awards In Last Fiscal Year"; "Do Executive Officers Currently Participate In A
Defined Benefit Retirement Plan?"; "Do Executive Officers Currently Participate
In Any Non-Qualified Deferred Compensation Plan?"; "Do Executive Officers Have
Any Change-In-Control Arrangements?"; "Do Any Of The Executive Officers Have
Employment Agreements?"; and "Compensation Committee Interlocks And Insider
Participation" in our definitive Proxy Statement for our 2005 Annual Meeting of
Shareholders, is incorporated herein by reference. The information appearing in
the Proxy Statement under the heading "Compensation Committee Report" (except
under the heading "Compensation Committee Interlocks And Insider Participation")
is not incorporated herein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained in the sections entitled "Security Ownership Of
Principal Shareholders" and "Security Ownership Of Management" in our definitive
Proxy Statement for our 2005 Annual Meeting of Shareholders, is incorporated
herein by reference.
Equity Compensation Plan Information
The following table gives information about our common shares that may be
issued as of May 29, 2005 under our 2002 Stock Incentive Plan ("2002 Plan"),
Stock Option and Long-Term Incentive Plan of 1995 ("1995 Plan"), Restaurant
Management and Employee Stock Plan of 2000 ("2000 Plan"), Stock Plan for
Directors ("Director Stock Plan"), Compensation Plan for Non-Employee Directors
("Director Compensation Plan") and Employee Stock Purchase Plan.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights (1) rights equity compensation plans
(excluding securities
reflected in column (a))
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders
(2) 17,409,311 $16.49 9,470,683 (3)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders
(4) 3,205,053 $18.89 90,134 (5)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 20,614,364 $16.86 9,560,817
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<FN>
(1) Includes deferred compensation obligations that may be paid out in common
stock.
(2) Includes the 2002 Plan, 1995 Plan and Employee Stock Purchase Plan.
(3) In addition to grants of options, warrants or rights, includes up to
7,627,934 shares of common stock or other stock-based awards, including up
to 1,018,510 shares of restricted stock, that may be issued under the 2002
Plan, and up to 1,842,749 shares of common stock that may be issued under
the Employee Stock Purchase Plan. Does not include shares under the 1995
Plan, because no new awards may be made under that plan.
(4) Includes the 2000 Plan, Director Stock Plan and Director Compensation Plan.
(5) In addition to grants of options, warrants or rights, includes up to 90,134
shares of common stock that may be issued under the Director Compensation
Plan. Does not include shares under the 2000 Plan or Director Stock Plan
because no new awards may be made under those plans.
</FN>
19
The 2000 Plan
The 2000 Plan provided for the issuance of up to 5,400,000 shares of common
stock out of our treasury as non-qualified stock options, restricted stock or
restricted stock units. No awards could be made under the 2000 Plan after
January 1, 2004, but options and other awards granted prior to that time remain
outstanding and will vest in accordance with their terms. Only our employees
other than executive officers were eligible to receive awards under the 2000
Plan. The purpose of the 2000 Plan was to provide incentives and awards to
employees who may be responsible for the management, growth and sound
development of our restaurants, and to align the interests of employees with the
interests of our shareholders. The 2000 Plan is administered by the Compensation
Committee of the Board of Directors. The exercise price of a stock option
granted under the 2000 Plan could not be less than the fair market value of the
underlying stock on the date of grant, and no option could have a term of more
than ten years. The options currently outstanding under the 2000 Plan generally
vest one to four years after the date of grant and expire ten years from the
date of grant. The 2000 Plan was approved by our Board of Directors.
The Director Stock Plan
The Director Stock Plan provides for the issuance of up to 375,000 shares
of common stock out of our treasury as non-qualified stock options, restricted
stock, restricted stock units or stock awards. Our non-employee directors are
the only persons eligible to receive awards under the Director Stock Plan. The
purpose of the Director Stock Plan is to provide incentives and awards to
non-employee directors to align their interests with those of our shareholders.
The Director Stock Plan is administered by the Compensation Committee of the
Board of Directors. The exercise price of a stock option granted under the
Director Stock Plan may not be less than the fair market value of the underlying
stock on the date of grant, and no option may have a term of more than ten
years. The options that are currently outstanding under the Director Stock Plan
generally vest one to three years after the date of grant and expire ten years
from the date of grant. The restrictions on restricted stock and restricted
stock units granted under the plan generally lapse one year after the date of
grant. The Director Stock Plan was approved by our Board of Directors. No awards
may be made under the Director Stock Plan after September 30, 2005.
The Director Compensation Plan
The Director Compensation Plan provides for the issuance of up to 105,981
shares of common stock out of our treasury. The plan allows us to award cash,
deferred cash and common stock. Our non-employee directors are the only persons
eligible to receive awards under the plan. The purpose of the plan is to provide
incentives and awards to non-employee directors to align their interests with
those of our shareholders. The plan is administered by the Compensation
Committee of the Board of Directors and was approved by the Board. No awards may
be made under the Director Compensation Plan after September 30, 2005.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the sections entitled "Do You Provide Loans
For Executive Officers To Meet Their Share Ownership Guidelines?" and "Are There
Any Other Relationships Or Related Transactions Between Us And Our Management?"
in our definitive Proxy Statement for our 2005 Annual Meeting of Shareholders,
is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the section entitled "Independent Registered
Public Accounting Firm Fees And Services" in our definitive Proxy Statement for
our 2005 Annual Meeting of Shareholders, is incorporated herein by reference.
20
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements:
Consolidated Statements of Earnings for the fiscal years ended May 29,
2005, May 30, 2004 and May 25, 2003.
Consolidated Balance Sheets at May 29, 2005 and May 30, 2004.
Consolidated Statements of Changes in Stockholders' Equity and
Accumulated Other Comprehensive Income (Loss) for the fiscal years
ended May 29, 2005, May 30, 2004 and May 25, 2003.
Consolidated Statements of Cash Flows for the fiscal years ended May
29, 2005, May 30, 2004 and May 25, 2003.
Notes to Consolidated Financial Statements.
2. Financial Statements Schedules:
Not applicable.
3. Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed as part of
this Form 10-K and incorporated herein by reference. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the
rights of holders of certain of our long-term debt are not filed, and in lieu
thereof, we agree to furnish copies thereof to the Securities and Exchange
Commission upon request. The Exhibit Index specifically identifies with an
asterisk each management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K. We will furnish copies of any
exhibit listed on the Exhibit Index upon request upon the payment of a
reasonable fee to cover our expenses in furnishing such exhibits.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: July 29, 2005 DARDEN RESTAURANTS, INC.
By: /s/ Clarence Otis, Jr.
----------------------------------------
Clarence Otis, Jr., Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Joe R. Lee* Director, July 29, 2005
- ------------------------------------ Chairman of the Board
Joe R. Lee
/s/ Clarence Otis, Jr. Chief Executive Officer July 29, 2005
- ------------------------------------ (Principal executive officer)
Clarence Otis, Jr. and Director
/s/ Linda J. Dimopoulos Senior Vice President July 29, 2005
- ------------------------------------ and Chief Financial Officer
Linda J. Dimopoulos (Principal financial and
accounting officer)
/s/ Leonard L. Berry* Director
- ------------------------------------
Leonard L. Berry
/s/ Odie C. Donald* Director
- ------------------------------------
Odie C. Donald
/s/ David H. Hughes* Director
- ------------------------------------
David H. Hughes
/s/ Charles A. Ledsinger, Jr. * Director
- ------------------------------------
Charles A. Ledsinger, Jr.
/s/ William M. Lewis, Jr. * Director
- ------------------------------------
William M. Lewis, Jr.
/s/ Andrew H. Madsen* Director
- ------------------------------------
Andrew H. Madsen
/s/ Cornelius McGillicuddy, III* ** Director
- ------------------------------------
Cornelius McGillicuddy, III
/s/ Michael D. Rose* Director
- ------------------------------------
Michael D. Rose
/s/ Maria A. Sastre* Director
- ------------------------------------
Maria A. Sastre
/s/ Jack A. Smith* Director
- ------------------------------------
Jack A. Smith
22
/s/ Blaine Sweatt, III* Director
- ------------------------------------
Blaine Sweatt, III
/s/ Rita P. Wilson* Director
- ------------------------------------
Rita P. Wilson
*By: /s/ Paula J. Shives
----------------------------------------
Paula J. Shives, Attorney-In-Fact
July 29, 2005
** Popularly known as Senator Connie Mack, III. Senator Mack signs legal
documents, including this Form 10-K, under his legal name of Cornelius
McGillicuddy, III.
23
EXHIBIT INDEX
Exhibit
Number Title
---------- -------
3(a) Articles of Incorporation as amended May 26, 2005.
3(b) Bylaws as amended July 21, 2003 (incorporated by reference to
Exhibit 3(b) to our Annual Report on Form 10-K for the fiscal
year ended May 25, 2003).
4(a) Rights Agreement dated as of May 16, 2005 between us and
Wachovia Bank, National Association, as Rights Agent
(incorporated by reference to Exhibit 4.1 to our Current Report
on Form 8-K filed May 16, 2005).
4(b) Indenture dated as of January 1, 1996, between us and Wells
Fargo Bank, National Association (as successor to Wells Fargo
Bank Minnesota, National Association, formerly known as Norwest
Bank Minnesota, National Association) (incorporated by
reference to Exhibit 4.1 to our Current Report on Form 8-K
filed February 9, 1996).
*10(a) Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Plan of 1995, as amended March 19, 2003 (incorporated
herein by reference to Exhibit 10(b) to our Quarterly Report on
Form 10-Q for the quarter ended February 23, 2003).
*10(b) Darden Restaurants, Inc. FlexComp Plan as amended March 19,
2003 (incorporated herein by reference to Exhibit 10(f) to our
Quarterly Report on Form 10-Q for the quarter ended February
23, 2003).
*10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive
Conversion Plan, as amended (incorporated herein by reference
to Exhibit 10(c) to our Annual Report on Form 10-K for the
fiscal year ended May 26, 1996).
*10(d) Supplemental Pension Plan of Darden Restaurants, Inc.
*10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated
herein by reference to Exhibit 10(e) to our Registration
Statement on Form 10 effective May 5, 1995).
*10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended
June 19, 2003 (incorporated by reference to Exhibit 10(f) to
our Annual Report on Form 10-K for the fiscal year ended May
25, 2003).
*10(g) Darden Restaurants, Inc. Compensation Plan for Non-Employee
Directors, as amended March 19, 2003 (incorporated herein by
reference to Exhibit 10(d) to our Quarterly Report on Form
10-Q for the quarter ended February 23, 2003).
*10(h) Darden Restaurants, Inc. Management and Professional Incentive
Plan, as amended June 19, 2003 (incorporated by reference
to Exhibit 10(h) to our Annual Report on Form 10-K for the
fiscal year ended May 25, 2003).
*10(i) Benefits Trust Agreement dated as of October 3, 1995, between
us and Wells Fargo Bank, National Association (as successor to
Wells Fargo Bank Minnesota, National Association, formerly
known as Norwest Bank Minnesota, National Association)
(incorporated herein by reference to Exhibit 10(i) to our
Annual Report on Form 10-K for the fiscal year ended May 25,
1997).
24
*10(j) Form of Management Continuity Agreement, as amended, between us
and certain of our executive officers (incorporated herein by
reference to Exhibit 10(j) to our Annual Report on Form 10-K
for the fiscal year ended May 25, 1997).
*10(k) Form of documents for our Fiscal 1998 Stock Purchase/Option
Award Program, including a Non-Negotiable Promissory Note and
a Stock Pledge Agreement (incorporated herein by reference
to Exhibit 10(k) to our Annual Report on Form 10-K for the
fiscal year ended May 27, 2001).
*10(l) Darden Restaurants, Inc. Restaurant Management and Employee
Stock Plan of 2000, as amended June 19, 2003 (incorporated by
reference to Exhibit 10(l) to our Annual Report on Form 10-K
for the fiscal year ended May 25, 2003).
*10(m) Darden Restaurants, Inc. 2002 Stock Incentive Plan, as amended
March 19, 2003 (incorporated herein by reference to Exhibit
10(a) to our Quarterly Report on Form 10-Q for the quarter
ended February 23, 2003).
10(n) Credit Agreement dated as of October 17, 2003, among Darden
Restaurants, Inc. and the banks named therein (incorporated
herein by reference to Exhibit 10 to our Quarterly Report on
Form 10-Q for the quarter ended November 23, 2003).
10(o) First Amendment dated as of February 4, 2004, to Credit
Agreement dated as of October 17, 2003, among Darden
Restaurants, Inc. and the banks listed therein (incorporated
herein by reference to Exhibit 10(a) to our Quarterly Report on
Form 10-Q for the quarter ended February 22, 2004).
*10(p) Form of Non-Qualified Stock Option Award Agreement under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10(a) to our
Current Report on Form 8-K filed June 21, 2005).
*10(q) Form of Restricted Stock Award Agreement under the Darden
Restaurants, Inc. 2002 Stock Incentive Plan.
*10(r) Form of Restricted Stock Units Award Agreement (U.S.) under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10(c) to our
Current Report on Form 8-K filed June 21, 2005).
*10(s) Form of Restricted Stock Units Award Agreement (Canada) under
the Darden Restaurants, Inc. 2002 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10(d) to our
Current Report on Form 8-K filed June 21, 2005).
*10(t) Form of Darden Stock Units Award Agreement (U.S.) under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10(e) to our
Current Report on Form 8-K filed June 21, 2005).
*10(u) Form of Darden Stock Units Award Agreement (Canada) under the
Darden Restaurants, Inc. 2002 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10(f) to our
Current Report on Form 8-K filed June 21, 2005).
*10(v) Darden Restaurants, Inc. Performance Criteria for 2006 Annual
Cash Bonus under the Management and Professional Incentive Plan
(incorporated herein by reference to Exhibit 10 to our
Quarterly Report on Form 10-Q for the quarter ended February
27, 2005).
25
*10(w) Letter Agreement dated October 7, 2004, between Joe Lee and
Darden Restaurants, Inc. (incorporated herein by reference to
Exhibit 10(a) to our Quarterly Report on Form 10-Q for the
quarter ended August 29, 2004).
12 Computation of Ratio of Consolidated Earnings to Fixed Charges.
13 Portions of 2005 Annual Report to Shareholders.
21 Subsidiaries of Darden Restaurants, Inc.
23 Consent of Independent Registered Public Accounting Firm.
24 Powers of Attorney.
31(a) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31(b) Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32(a) Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32(b) Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- ------------
* Items marked with an asterisk are management contracts or compensatory plans
or arrangements required to be filed as an exhibit pursuant to Item 14 of Form
10-K and Item 601(b)(10)(iii)(A) of Regulation S-K.
26